district court, denver county filing id: b5f0907f4e9ff ... · 6/1/2020 · 15. defendant benjamin...
TRANSCRIPT
DISTRICT COURT, DENVER COUNTY
STATE OF COLORADO
Denver District Court
1437 Bannock St.
Denver, CO 80202
▲COURT USE ONLY▲
Plaintiff: HARVEY SENDER, AS RECEIVER FOR
GARY DRAGUL; GDA REAL ESTATE SERVICES,
LLC; AND GDA REAL ESTATE MANAGEMENT,
LLC
v.
Defendants: GARY J. DRAGUL, an individual;
BENJAMIN KAHN, an individual; THE
CONUNDRUM GROUP, LLP, a Colorado Limited
Liability Company; SUSAN MARKUSCH, an
individual; ALAN C. FOX, an individual; ACF
PROPERTY MANAGEMENT, INC.; a California
Corporation, MARLIN S. HERSHEY, an individual;
and PERFORMANCE HOLDINGS, INC., a Florida
Corporation; OLSON REAL ESTATE SERVICES,
LLC, a Colorado Limited Liability Company;
JUNIPER CONSULTING GROUP, LLC, a Colorado
limited liability company; JOHN AND JANE DOES 1
– 10; and XYZ CORPORATIONS 1 – 10.
Attorneys for Plaintiff:
Patrick D. Vellone, #15284
Matthew M. Wolf, #33198
Rachel A. Sternlieb, #51404 ALLEN VELLONE WOLF HELFRICH & FACTOR P.C.
1600 Stout St., Suite 1900
Denver, Colorado 80202
Phone Number: (303) 534-4499
Case No: 2020CV30255
Division/Courtroom: 414
FIRST AMENDED COMPLAINT
DATE FILED: June 1, 2020 5:11 PM FILING ID: B5F0907F4E9FF CASE NUMBER: 2020CV30255
TABLE OF CONTENTS
I. INTRODUCTION ............................................................................................... 1
II. PARTIES ............................................................................................................. 3
III. JURISDICTION AND VENUE .......................................................................... 7
IV. GENERAL ALLEGATIONS ............................................................................... 8
A. General Factual Background – Key Players in the Fraudulent
Scheme ...................................................................................................... 8
B. Dragul’s Ponzi Scheme ........................................................................... 11
C. The Financial Operations of GDA ......................................................... 14
D. Solicitation of Investor Funds – Private Offerings ............................... 22
i. The Market at Southpark ........................................................... 28
ii. Plaza Mall of Georgia North ....................................................... 42
iii. Fort Collins WF 02, LLC ............................................................. 48
E. Real Estate Transfers Between Dragul and Fox – Prospect
Square ..................................................................................................... 61
F. Dragul, Markusch, the Kahn and Fox Defendants’ Conduct
Designed to Thwart the Receiver’s Efforts and Conceal or
Impermissibly Transfer Receivership Estate Assets ............................ 71
G. Payment of Unauthorized Commissions ............................................... 80
i. The Dragul and Fox Commissions .............................................. 82
ii. The Markusch Commissions ....................................................... 83
iii. The Hershey Commissions .......................................................... 84
V. FIRST CLAIM FOR RELIEF: Violations of the Colorado Securities Act,
Colo. Rev. Stat. §§ 11-51-501 and 11-51-604(1), (2)(A), (3), and (5) ................ 85
A. Securities Registration Violations, C.R.S. §§ 11-51-604(1) and
11-51-301 (Against Dragul and the Fox Defendants) ........................... 85
B. Licensing and Notice Filing Violations, C.R.S. §§ 11-51-604(2)(a)
and 11-51-401 (Against Dragul and the Fox and Hershey
Defendants) ............................................................................................ 86
C. Securities Fraud in Violation of C.R.S. §§ 11-51-604(3) - (4) and
11-51-501(1)(a)-(c) (Against Dragul and the Fox Defendants). ............ 88
D. Control Person Liability, C.R.S. § 11-51-604(5)(a) and (b)
(Against Dragul and Fox) ....................................................................... 98
E. Substantial Assistance Claims, C.R.S. § 11-51-604(5)(c) (Against
the Kahn Defendants, the Fox Defendants, the Hershey
Defendants, Markusch) ........................................................................ 100
VI. SECOND CLAIM FOR RELIEF: Negligene (Against Dragul and the
Fox and Hershey Defendants) ........................................................................ 103
VII. THIRD CLAIM FOR RELIEF: Nelgigent Misrepresentation (Against
Dragul and the Fox and Hershey Defendants) .............................................. 104
VIII. FOURTH CLAIM FOR RELIEF: Civil Theft, Colo. Rev. Stat. § 18-4-
401 (Against all Defenandts) .......................................................................... 106
IX. FIFTH CLAIM FOR RELIEF: Violations of the Colorado Organized
Crime Control Act (“COCCA”) Colo. Rev. Stat. § 18-17-101, et seq.
(Against Dragul, the Fox Defendants, and the Hershey Defendants) .......... 107
X. SIXTH CLAIM FOR RELIEF: Aiding and Abetting Violations of
COCCA, Colo. Rev. Stat. § 18-17-101 et seq. (Against Markusch, and
the Kahn, Fox, and Hershey Defendants) ...................................................... 114
XI. SEVENTH CLAIM FOR RELIEF: Breach of Fiduciary Duty (Against
Dragul) ............................................................................................................. 118
XII. EIGHTH CLAIM FOR RELIEF: Aiding and Abetting Dragul’s Breach
of Fiduciary Duties (Against the Kahn Defendants) ..................................... 120
XIII. NINTH CLAIM FOR RELIEF: Negligence (Against the Kahn
Defendants) ..................................................................................................... 121
XIV. TENTH Claim for Relief: Breach of Fiduciary Duty (Against the Kahn
Defendants) ..................................................................................................... 122
XV. ELEVENTH Claim for Relief: Fraudulent Transfer, Colo. Rev. Stat. §
38-8-105(1)(a) (Against All Defendnats) ........................................................ 125
XVI. TWELFTH CLAIM FOR RELIEF: Unjust Enrichment (Against All
Defendants) ..................................................................................................... 126
PRAYER FOR RELIEF ............................................................................................. 126
1
Plaintiff, Harvey Sender, solely in his capacity as Receiver for the “Estate”
described below (the “Receiver”), brings the following First Amended Complaint (the
“Amended Complaint”):
I. INTRODUCTION
1. This case arises from a fraudulent commercial real estate scheme
orchestrated by Gary Dragul in concert with Marlin Hershey, Alan Fox, Susan
Markusch, and Benjamin Kahn, in which investors lost millions of dollars. Dragul, in
concert with the other defendants solicited more than $52 million from hundreds of
investors purportedly to purchase ownership interests in numerous single purpose
entities (“SPEs”).
2. Dragul and the other Defendants lured investors into investing millions
under false and misleading pretenses. Adopting strategies he learned from his
mentor and former business partner, Alan Fox, Dragul stole millions from investors
who, in some instances, invested their entire savings to support his extravagant
lifestyle.
3. Dragul, who has been indicted on fourteen counts of securities fraud, is
the defendant in a pending civil enforcement action brought by the Securities
Commissioner for the State of Colorado, and he consented to the appointment of the
Receiver in that action.
4. Dragul was able to carry on this fraudulent scheme for more than 20
years as a direct result of the participation, assistance, and efforts of the other
2
Defendants in this action. Each defendant played a distinct and important role in
carrying out Dragul’s scheme.
5. Hershey – who is currently embroiled in civil litigation brought against
him, his partner, and their various entities, by the Securities Exchange Commission
(the “SEC”), for violating federal securities laws – solicited individual investors for
Dragul by distributing solicitation materials containing material misrepresentations,
and received substantial illegal and undisclosed commissions from each investment
made in Dragul’s fraudulent scheme originated by Hershey .
6. Alan Fox, Dragul’s mentor and former business partner, has been sued
by numerous investors in California for engaging in the same type of fraudulent
conduct for which Dragul has been indicted. Fox prepared and distributed to Dragul’s
defrauded investors materially false and misleading solicitation materials for
investments in the ACF Property Management, Inc. (“ACF”) portfolio to solicit
investments therein, in furtherance of Dragul’s fraudulent scheme. Like Hershey,
Fox and his company, ACF, received undisclosed and illegal commissions. Fox and
Dragul also transferred investor properties between the two of them and improperly
inflated transfer prices to obtain undisclosed and fraudulent commissions.
7. Markusch, Dragul’s loyal and most trusted employee, effected the illegal
and undisclosed comingling of millions of investor dollars. In addition to the
handsome salary Dragul paid her, Markusch profited from undisclosed and illegal
3
real estate commissions through two of her wholly-owned companies, Olson Real
Estate Services, LLC (“Olson”) and Juniper Consulting Group, LLC (“Juniper”).
8. Finally, Benjamin Kahn, Dragul’s long-standing ally, co-conspirator and
counsel for Dragul, GDA and the Fox Defendants, participated in and profited from
Dragul’s fraudulent scheme in his representation and counsel of Dragul, GDA the
related SPEs, and Fox, in furtherance of the fraudulent scheme.
9. Demonstrating their unwavering loyalty to Dragul, like Dragul, Fox,
Kahn, and Markusch also withheld documents and information from the Receiver
and his team, while continuing to help Dragul conceal and purloin Estate assets,
transferring ownership and management rights of Estate assets, and interfering with
the Receiver’s efforts to discover and liquidate Estate assets.
II. PARTIES
10. On August 30, 2018, the Court in Chan v. Dragul, et al. Case No.
2018CV33011, District Court, Denver, Colorado (the “Receivership Court”) entered
a Stipulated Order Appointing Receiver (the “Receivership Order”) appointing
Harvey Sender of Sender & Smiley, LLC, as receiver for Gary Dragul (“Dragul”),
GDA Real Estate Services, LLC (“GDA RES”), GDA Real Estate Management, LLC
(“GDA REM”), (GDA RES and GDA REM are collectively referred to as, “GDA”), and
a number of related entities and single purpose entities (the “GDA Entities”), and
their assets, interests, and management rights in related affiliated and subsidiary
4
businesses (the “Receivership Estate” or the “Estate”). See Receivership Order,
previously attached to original Complaint as Exhibit 1 (“Compl. Ex. 1”).1
11. The Receivership Order grants the Receiver the authority to recover
possession of Receivership Property from any persons who may wrongfully possess it
and to prosecute claims premised on fraudulent transfer and similar theories.
Compl. Ex. 1, at ¶ 13(o).
12. The Receivership Order also grants the Receiver the authority to
prosecute claims and causes of action against third parties held by creditors of Dragul
and the GDA Entitles, and any subsidiary entities for the benefit of creditors of the
Estate, “in order to assure the equal treatment of all similarly situated creditors.”
Compl. Ex. 1, at ¶ 13(s).
13. The Receiver’s principal place of business is at 600 17th Street, Suite
2800, Denver, CO 80202.
14. Defendant Gary Dragul is an individual who is a resident of the State of
Colorado. His present address is unknown.
1 Exhibits 1 through 20 that were previously submitted with and attached to original
Complaint filed on January 21, 2020 are not being re-submitted herewith with the exception
of Exhibit 6 (Fox Defendants’ Commission Summary), which is amended and substituted
with this filing. References in this Amended Complaint to “Compl. Ex.” shall mean and refer
to those Exhibits 1 through 20 submitted with the Original Complaint.
5
15. Defendant Benjamin Kahn (“Kahn”) is an individual who resides at 229
½ F Street, Salida, Colorado 81201. At all relevant times, Kahn was general counsel
for GDA REM and GDA RES, and the GDA Entities.
16. Defendant the Conundrum Group, LLP (“CG”) is a Colorado Limited
Liability Partnership with its principal place of business 229 1/2 F Street, Salida, CO
81201. Its registered agent is Megan Rae Kahn, at the same address. (Kahn and CG
are referred to as the “Kahn Defendants”). At all relevant times, Kahn was an agent
of Defendant CG.
17. Defendant Susan Markusch, (“Markusch”) resides at 6321 South
Geneva Circle, Englewood, CO 80111. At all relevant times, Markusch was the
controller and chief financial officer of GDA RES, GDA REM, and the GDA Entities.
18. Defendant Olson Real Estate Services, LLC (“Olson RES”) is a Colorado
limited liability company with its principal place of business located at 6321 South
Geneva Circle, Englewood, CO 80111. Olson RES’s registered agent is Andrew
Solomon, 10794 E Berry Ave., Englewood, Colorado 80111.
19. Defendant Juniper Consulting Services, LLC (“Juniper”) was a
Colorado limited liability company with its principal place of business located at
11425 Cimmaron Drive, Englewood, Colorado 80111. Juniper filed articles of
dissolution with the Colorado Secretary of State on November 24, 2019. (Markusch,
Olson RES and Juniper are referred to as the “Markusch Defendants”).
6
20. Defendant Alan C. Fox (“Fox”) is an individual who resides at 2081
Jeremy Lane, Escondido, California 92027-1159.
21. Defendant ACF Property Management, Inc. (“ACF”) is a California
corporation with its principal place of business located at 12411 Ventura Boulevard,
Studio City, California, 91604. At all relevant times, ACF was registered to do
business in the State of Colorado. ACF’s registered agent is Moye White, LLP:
Registered Agent Department, at 1400 16th Street, 6th Floor, Denver, Colorado,
80202. (Fox and ACF are referred to as the “Fox Defendants”).
22. At all relevant times, Fox owned and controlled ACF, the entity through
which he funneled commissions and other payments from Dragul and the GDA
Entities.
23. At all relevant times herein, ACF utilized and shared the employees of
GDA RES and GDA REM, including Defendant Markusch, to carry on the business
of ACF without declaring such employees for taxation or other employment
regulatory purposes.
24. Neither Fox nor ACF were licensed or registered brokers with the
Financial Industry Regulatory Authority (“FINRA”), the State of Colorado or the
SEC; nor were they affiliated or associated with a FINRA or SEC licensed or
registered broker-dealer for any time period relevant to the allegations in this
Complaint.
7
25. Defendant Marlin Hershey (“Hershey”) is an individual who resides at
15514 Fisherman’s Rest Ct., Cornelius, North Carolina 28031-7646.
26. Defendant Performance Holdings, Inc. (“PHI”) is a Florida corporation
with its principal place of business in Huntersville, North Carolina (Hershey and PHI
are referred to as the “Hershey Defendants”).
27. At all relevant times, Hershey owned and controlled PHI through which
he funneled commissions from Dragul and the GDA Entities.
28. Neither Hershey nor PHI were licensed or registered brokers with
FINRA, the State of Colorado or the SEC; nor were they affiliated or associated with
a FINRA or SEC licensed broker-dealer for any time period relevant to the allegations
in this Complaint.
29. Dragul, Kahn, CG, Markusch, Olson RES, Fox, ACF, Hershey, and PHI
are collectively referred to as the “Defendants.”
30. Upon information and belief, John and Jane Does 1 – 10 are individuals
whose names and addresses are presently unknown.
31. Upon information and belief, XYZ Corporations 1 – 10 are corporations
and other legal entities, the names and addresses of which are presently unknown.
III. JURISDICTION AND VENUE
32. Jurisdiction is proper under COLO. REV. STAT. § 13-1-124 and the
Colorado Constitution, Article VI, Section 9, because, since 2007, Defendants have
8
had ongoing and systematic contacts with Dragul and the GDA Entities in Colorado
in furtherance of a scheme to defraud innocent investors.
33. Venue is proper under C.R.C.P. 98(c), because the Receiver’s principal
place of business is in the City and County of Denver and service can be made on one
or more of the Defendants in the City and County of Denver.
IV. GENERAL ALLEGATIONS
A. General Factual Background – Key Players in the Fraudulent Scheme
34. This action arises from a multi-million-dollar fraud and Ponzi scheme
perpetrated by Dragul in concert with the other Defendants in violation of the
Colorado Securities Act (the “Act”).
35. From 1995 through 2018, Dragul as the President of GDA RES and GDA
REM, operated a real estate investment business through the use of a variety of
investment vehicles in which various persons and entities invested (the “Sham
Business”).
36. Since approximately 1996, Dragul’s mentor and joint venture business
partner, Fox, has operated ACF, a similar real estate investment business whose
offices are in Ventura, California.
37. Upon information and belief since GDA was formed until approximately
August 2018, ACF used GDA’s employees to conduct ACF’s business including all
aspects of ACF’s acquisitions process, leasing, property management, tenant
relations, marketing and sale of properties, roll-over investments, and other matters.
9
38. Upon information and belief, while employees of GDA worked for ACF
as de facto employees, the Fox Defendants did not report or otherwise declare these
individuals of ACF employees for tax or other purposes.
39. For more than 20 years, Markusch worked with Dragul as GDA’s
controller and CFO. Markusch’s duties as controller and CFO entailed oversight and
management of all accounting, bookkeeping, banking, financial reporting and
recordkeeping, taxes and the like, as well as office manager of the GDA Entities.
40. As controller and CFO of the GDA Entities, Markusch was a signatory
and authorized user of all GDA and SPE bank accounts, and thus had full control,
authority, and access to funds therein.
41. The Hershey Defendants furthered Dragul’s fraudulent scheme by
identifying and soliciting investors for the Sham Business.
42. For his successful solicitation efforts, Hershey received a percentage of
the total investment made by each investor as an undisclosed and illegal finder’s fee
or commission.
43. Hershey was directly involved in, and in some instances, drafted false
and misleading communications Dragul sent to investors, as more specifically
described herein.
44. The Colorado Securities Commissioner and the Colorado Attorney
General began to investigate Dragul and the GDA Entities in 2014 after receiving
complaints from investors.
10
45. On April 12, 2018, Dragul was indicted by a Colorado State Grand Jury
on nine counts of securities fraud (the “First Indictment”). The First Indictment is
attached as Exhibit 21.
46. On March 1, 2019, Gary Dragul was indicted by a Colorado State Grand
Jury on an additional five counts of securities fraud (the “Second Indictment”). The
Second Indictment is attached as Exhibit 22.
47. In or about March 2018, one month before Dragul’s First Indictment,
Markusch began maintaining all accounting reconciliations for all GDA Entities in
handwritten notes, as opposed to electronically, where it had previously been stored
on the company’s servers as had been GDA’s practice before the indictments.
48. In or about April 2019, the Receiver executed a writ of assistance at
Markusch’s home, where 11 boxes of Estate documents and records were discovered,
including over 100 pages of handwritten reconciliations for accounts in Dragul’s and
the GDA Entities’ names.
49. Upon information and belief, Markusch removed the 11 boxes of
documents from GDA and stored them at her home to conceal them from the Receiver
and the Commissioner.
50. Kahn has served as outside general counsel to the GDA Entities and the
SPEs for numerous years, and drafted solicitation documents, operating agreements,
and other legal documents for Dragul and the GDA Entities, and for the SPEs, and
in that capacity gained knowledge of the Sham Businesses.
11
51. Since the Receiver’s appointment, Kahn has conspired with Dragul and
Markusch to conceal documents and assets from the Receiver, and to transfer
management rights and ownership interests in entities subject to the Receivership.
52. Without disclosure to investors, Kahn was also paid legal fees from the
escrow of certain properties for work unrelated to the specific SPEs from which the
funds were paid.
B. Dragul’s Ponzi Scheme
53. Dragul, in active concert with the other Defendants (collectively, the
“Non-Dragul Defendants”), solicited investors to purchase membership interests
in various limited liability companies/SPEs that were engaged in the business of
acquiring and managing commercial real estate, primarily retail shopping malls.
54. According to the Complaint for Injunctive and Other Relief filed on
behalf of the Commissioner, from January 2008 until December 2015, Dragul,
through GDA, sold more than $52 million worth of interests in 14 SPEs to
approximately 175 investors (collectively referred to as, the “GDA Entity
Investors”). Compl. Ex. 2.
55. The following is a list of the 14 SPEs included in the Commissioner’s
Complaint with the amount raised for each by Dragul from investors and the
approximate date of the securities offerings:
12
Property SPE Owner(s) of
the Property
Bank Accounts Associated
with
Offering
Amount
Raised
Approx.
Date(s) of
Offering
Broomfield Broomfield Shopping
Center 09 A, LLC
GDA Broomfield 09, LLC $800,000 2009
Clearwater Clearwater Collection
15 LLC; Clearwater
Plainfield 15, LLC
Clearwater Collection 15,
LLC; GDA Clearwater 15,
LLC
$6,224,904 2015
Crosspointe Crosspointe 08 A,
LLC
Crosspointe 08 A, LLC $4,519,667 2008
Fort Collins
Highlands Ranch
Village Center II (HR
II 05 A, LLC)
Fort Collins WF 02, LLC
$2,679,6692
2008-2009
Southwest Commons
05 A, LLC
2008-2009
Meadows Shopping
Center 05 A, LLC
2008-2009
Laveen Ranch
Marketplace 12, LLC
2012
Trophy Club 12, LLC 2012
Market at
Southpark
Market at Southpark
09, LLC
GDA Market at Southpark
LLC; Market at Southpark 09,
LLC
$255,000
2010
Loggins
Corners
2012
Trophy
Club
2012
High Street
Condos
2321 S High Street,
LLC
2321 South High Street, LLC $1,000,000 2014
2329 S High Street,
LLC
2329 South High Street, LLC
PMG (Plaza
Mall of
Georgia
North)
Plaza Mall North 08
B Junior, LLC
Plaza Mall North 08 A Junior,
LLC; Plaza Mall North 08 B
Junior, LLC
$9,025,765 2008 – 2016
2 The total funds raised include at least $50,000 in “roll-over” investments, and as such, real
funds were not put into the SPE or the property. Moreover, this amount also includes
interests purportedly held by Dragul, and several Dragul insiders including is parents, his
mother-in-law, two close personal friends, and Markusch. It is unlikely that these purported
investors actually contributed real funds to the deal.
13
Property SPE Owner(s) of
the Property
Bank Accounts Associated
with
Offering
Amount
Raised
Approx.
Date(s) of
Offering
Plainfield
Commons
Plainfield 09 A, LLC Plainfield 09 A, LLC $2,598,750 2009 – 2013
Prospect
Square
Prospect Square 07 A,
LLC, Prospect Square
07 B, LLC, Prospect
Square 07 C, LLC,
Prospect Square 07
D, LLC, PS 16, LLC
and PS 16 Member,
LLC
PS 16, LLC
Prospect Square 07 A, LLC;
GDA PS Member LLC; GDA
PS16 Member LLC; PS 16
LLC
$4,890,079 2007 and 2016
Rose Rose, LLC Rose, LLC /Rose, LLC (Not a
duplicate - two different
accounts)
$4,980,830 2011 – 2013
Syracuse Syracuse Property
06, LLC
Syracuse Property 06, LLC $2,625,000 2008 – 2009
Village
Crossroads
Village Crossroads
09, LLC
GDA Village Crossroads LLC $1,707,100 2009 – 2012
Walden Walden 08 A, LLC Walden 08 A, LLC; Walden
08 A, LLC; Walden 08 A,
LLC (not duplicates - three
different accounts)
$4,705,000 2008
Windsor Windsor 15, LLC GDA Windsor Member LLC;
Windsor 15 LLC; Windsor 15
LLC (not a duplicate)
$6,478,715 2015
TOTAL AMOUNT RAISED $52,490,479
56. The above-listed SPEs and amounts raised therefor represent only a
portion of the SPEs for which Dragul solicited and raised investor funds. Dragul and
the GDA Entities solicited and raised substantial amounts from investors for SPE
properties outside of the Commissioner’s period of review.
57. These SPEs were Dragul’s investment vehicles at the time of the
Commissioner’s Complaint. Before forming these SPEs, Dragul, in concert with Non-
14
Dragul Defendants, used multiple other SPE investment vehicles to defraud
investors including the sale of promissory notes, and forced roll-over investments
from one property to another.
C. The Financial Operations of GDA
58. Upon receiving investor funds at closing of real estate purchases made
by the SPEs, Markusch, as CFO of the GDA Entities, typically transferred funds that
should have been segregated in SPE accounts into GDA RES accounts and then into
accounts held in Dragul’s name, individually. The shortfalls were financed by
mortgage loans. In some instances, the SPEs were unable to reduce even the principal
amount of those mortgage loans, since the SPE’s cash flows were insufficient to cover
the operating expenses and fictitious profits paid to investors.
59. Beginning at least as early as 2008 and continuing through August
2018, Markusch would provide Dragul with daily account balances for his and his
family’s bank accounts as well as all of the GDA Entities’ accounts, noting what the
balances were on the bank’s records, in GDA’s records, and noting pending
transactions that had not yet posted. Markusch advised Dragul how much total was
needed to ensure that certain pending transactions would post and in return, Dragul
would instruct Markusch which account(s) to transfer the funds from and to on any
given day. Markusch completed each transaction, improperly comingling funds
among and between the GDA Entities by moving money from account to account.
15
60. Over time, if a particular SPE was either suffering losses or was
disposed of by Dragul for personal profit, rather than paying investors their pro rata
share of profits, or allocating pro rata losses to them, Dragul would hold investors
hostage in a deal and require them to “rollover” investors’ equity positions into a
newly formed SPE, and would induce investors to contribute additional funds for
their new equity position in the rollover SPE. In this manner, Dragul sold more than
100% of the equity interests in at least one SPE, and perhaps more.
61. For example, from approximately 2009 through 2014, Dragul solicited
and received investment funds in Plainfield 09 A, LLC (“Plainfield 09”), which
owned the Plainfield Shopping Center in Indiana. Ultimately, Dragul sold over 194%
of the membership interests in Plainfield 09 to approximately 30 investors (the
“Plainfield Investors”), raising over $2.5 million, which includes over $1.5 million
of new cash investments. See Plainfield Investor Summary Chart, attached as
Exhibit 23. Without consent of the Plainfield Investors, on March 11, 2015, Dragul
sold the Plainfield property for $5,563,500, for more than a $1.1 million profit. From
escrow, GDA received an undisclosed $75,000 “consulting fee.” See Ex. 22 (Second
Indictment).
62. Again, without giving them the option, Dragul forced the Plainfield
Investors to “roll-over” their investment into a new SPE, Clearwater Collection 15,
LLC (“Clearwater”) which owned property in Clearwater Florida, while also selling
interests to new investors. On October 5, 2015, Dragul wrote to the Plainfield
16
Investors telling them that the Plainfield sales proceeds had been reinvested in the
Clearwater property and enclosed Solicitation Materials that Dragul had prepared.
Importantly, the solicitation materials, like those discussed below contained material
misrepresentation and omissions, including inter alia, overstating the purchase price
for the property by $900,000, and failing to disclose the unauthorized commissions in
the amount of $187,100 and $100,000 that Dragul paid himself (through GDA) and
ACF, respectively. See Oct. 5, 2010 Letter and Clearwater Solicitation Materials,
attached as Exhibit 24.
63. Dragul also used promissory notes to further his fraudulent enterprise
and Ponzi scheme. When he was unable to repay the promissory notes as they became
due, he would either extend the notes or convert them to equity positions in SPEs
without contributions of additional capital. This effectively diluted existing investors’
interests without notice to them and without any benefit to the particular SPE.
64. For Example, as alleged in the First Indictment, Dragul’s scheme also
involved offering investors promissory notes with varying interest rates and
durations (typically between three and eighteen months). From approximately 2007
through 2013, solicited by Hershey who had represented that Dragul and GDA were
very successful and that Dragul was worth millions of dollars, Dragul sold $6.4
million worth of promissory notes, most of which were to be repaid over an eighteen-
month period at an interest rate of 10%, with interest-only payments for the first six
months followed by twelve monthly payments of principal and interest. Dragul did
17
not register these offerings with either the SEC or the Colorado Division of Securities
and was never licensed to sell securities. Dragul defaulted on most of the notes during
the interest only payment period, and when investors complained, Kahn stepped in
to purportedly “handle it” by continuing to “gaslight” these investors.
65. By the end of 2012, Dragul owed more than $4 million to investors
pursuant to promissory notes issued in 2007 and 2008. Notwithstanding, he offered
and sold new promissory notes to 21 new investors, raising approximately $2.4
million more, without disclosing the unpaid notes presently in default. In some
instances, Dragul would convert unpaid, due or past-due notes into membership
interests in various SPEs as an alternative way to pay these investors, who Dragul
and Kahn referred to as “friends of the house.” See Ex. 22 (Second Indictment), at 3-
5.
66. Dragul also obtained personal loans from investors and secured them
with real property owned by various SPEs. In some cases, this was done in violation
of express provisions of the governing operating agreements and loan agreements.
Dragul represented to investors who purchased promissory notes that their funds
would be used for particular purposes related to SPE real estate assets, when in fact
Dragul used those funds to support his extravagant lifestyle.
67. For example, one such loan is presently the subject of a pending lawsuit
filed against Fox to invalidate a lien on property previously held by the Receivership
Estate. See GDA DU Student Housing A, LLC v. Alan C, Fox, Case No. 2019CV32374
18
(Denver District Court) (the “DU Litigation”). In or about 2014, Dragul, with the
assistance of Hershey, solicited and raised approximately $1 million3 from seven (7)
individual investors, R.L., C.L., M.R., S.L.P. Trust, E.S. K.S. and L. W.4 (the “High
Street Investors”), through the sale of membership interests in the High Street
Condo Project, LLC (“High Street”). See High Street Investor Detail Chart, attached
as Exhibit 25. Dragul and the Hershey Defendants misrepresented in the offering
materials provided these investors that High Street would be developing residential
condominiums and the investment proceeds would be invested in the acquisition and
renovation of three parcels of identified real property. Upon information and belief
Hershey knew these representations were false and misleading and were made to
persuade individuals to invest in the project.
68. Unbeknownst to the High Street investors, in December 2017 and
January 2018, Dragul sold the three parcels of real property as well as an Architect’s
contract for the project, to two newly formed Dragul controlled SPEs, GDA DU
Student Housing 18 A, LLC (“GDA DU A”), and GDA DU Student Housing 18 B,
LLC (“GDA DU B”). Dragul did not roll over the investors into the new SPEs and
instead, continued paying distributions to investors at least through June 2018
3 This amount includes a total of $150,000 that Dragul “rolled-over” from a prior, failed
investment, Crosspointe, in which two of the investors E.S. and K.S. had previously invested.
4 For the privacy and confidentiality of the GDA Entity Investors, initials are used in the
complaint. The investor lists submitted as exhibits and filed as “protected” herewith contain
the Investors’ full names.
19
representing to the High Street Investors that these distributions were actual returns
on their investments.
69. GDA DU A consisted of three members – GDA Student Housing
Member, LLC (15.79%) (wholly owned by Dragul), and two entities comprised of
Israeli investment funds – Hagshama Denver Colorado 2, LLC (56.61%) and Cofund
9, LLC (27.60%) (collectively, the “Hagshama Members”). GDA DU A was to be
managed by another SPE, GDA DU Student Housing Management, LLC, which in
turn, is managed by GDA REM. The December 28, 2017 GDA DU A operating
agreement specifically prohibited the manager from encumbering the property unless
certain, limited circumstances permitted it. However, on April 11, 2018 – one day
before the First Indictment – Fox loaned Dragul $300,000 as evidenced by a
promissory note and purportedly secured by a first deed of trust on one parcel of the
three DU properties, both of which were signed by Dragul on behalf of the GDA DU
entities. As alleged in the DU litigation, upon information and belief, Dragul and Fox
fraudulently created the deed of trust predating the First Indictment. The deed of
trust was not recorded, however, until June 11, 2018.
70. Then, on July 25, 2018, more than one month before the Receiver’s
appointment, Dragul again fraudulently encumbered the very same property. Fox
again loaned Dragul another $600,000 as evidenced by a promissory note of the same
date and executed a second deed of trust transferring that same property to the Public
Trustee of Denver County Fox’s benefit. The second deed of trust was not recorded
20
until July 26, 2018. Neither loan or deed of trust were disclosed to the Hagshama
Members, and both were in violation of the GDA DU A operating agreement.
71. Of the $900,000 loaned by Fox in 2018, none actually went to or
benefitted either of the DU SPEs, the properties, or otherwise benefitted the
investment. Rather, all money was diverted to and used by Dragul for personal and
other purposes. The July 25th $600,000 loan was deposited into the GDA RES Fortis
bank account No. x3186 and thereafter, $575,000 was paid to Fox for his interest in
HC Shoppes 18, LLC; $21,000 was transferred into Dragul’s personal account, and
$4,000 was transferred to various unrelated SPE accounts. Similarly, the May 14th
$300,000 loan from Fox was first deposited directly into the GDA RES Chase bank
acct no. x5225, and subsequently, $92,700 was paid as a distribution to Aaron
Steinberg, a relative of Dragul’s long-time friend and trusted ally, Marty Rosenberg;
$65,000 was paid to Xin Nick Liu who had a lien on Dragul’s residence as collateral
for significant personal loans made to Dragul; $75,000 was paid to Chad Hurst,
another long-time friend and investor of Dragul’s who oftentimes extended personal
loans when Dragul was in need; $33,800 was transferred to the Rose, LLC SPE bank
account; $30,597.04 was comingled with other funds in the GDA RES Fortis account
no. x3186 and ultimately used to make distribution payments to SPE investors; and
$2,092.96 was used for GDA operations. As a result, the buyer of the Estate’s interest
in the DU entities now seeks to invalidate Fox’s liens and have both declared
fraudulent transfers. See DU Litigation.
21
72. Instead of treating the SPEs as separate legal entities, Dragul and
Markusch, with the Kahn Defendants’ knowledge and active assistance, routinely
diverted money from SPE accounts to GDA RES accounts and from there to Dragul’s
personal account. Markusch effected the transfers. Dragul and Markush thus
commingled SPE funds with other SPE accounts, Dragul’s personal funds, and funds
of Dragul’s family members.
73. Dragul and Markusch routinely reversed the comingling process and
transferred money from Dragul’s personal account to GDA RES and then to SPE
accounts at the end of financial reporting periods so they could falsely represent to
investors the financial condition of the various SPEs. Immediately after such
reporting, Dragul and Markusch transferred the funds once again, but this time, out
of the SPE accounts, and would then begin the churning process anew.
74. This scheme resulted in investors not having their funds held or
invested in the particular projects and properties where Dragul represented they
would be held or invested. Dragul and Markusch used the GDA RES account and the
SPE accounts as if they were interchangeable. This commingling of funds was one of
the mechanisms Dragul and Markusch used to defraud investors. None of the
investor funds transferred in to or out of any particular SPE can be identified
substantially as an asset of any SPE, and as a result, the investor funds have lost
their identity and have become untraceable. There was no legitimate business reason
22
for this comingling, which was undertaken to such an extent that it is impossible to
know the true ownership of the commingled funds.
75. From GDA’s inception in 1995, Dragul’s investment scheme was
insolvent, due to Dragul’s pilfering of the SPEs and his unauthorized and undisclosed
use of investor funds for his personal benefit, and for the benefit of his employees and
family.
76. While Dragul created SPEs did generate cash flow, the cash flow was
not sufficient to pay investors the promised returns. Dragul and Markusch diverted
investor funds to Dragul and their family’s personal use and to pay fictitious returns
or redemptions to other investors.
77. Commencing at least by 2007 and continuing through 2018, Dragul was
operating his entire business enterprise as a Ponzi scheme. Dragul and Markusch
concealed this ongoing fraud in an effort to hinder, delay, and defraud other current
and prospective investors and creditors from discovering the fraud. Money that
Dragul received from investors was used to make distributions to, or payments on
behalf of, earlier investors. Funds provided to Dragul as loans and for investment
purposes were used to keep the operation afloat and enrich Dragul and others.
D. Solicitation of Investor Funds – Private Offerings
78. Dragul, together with the Fox and Hershey Defendants, solicited funds
from investors for the stated purpose of purchasing and operating specific commercial
properties, primarily retail shopping centers. Each SPE was purportedly a separate
23
legal entity in which investors were promised profits from the operation, leasing, and
eventual sale of the property.
79. Upon information and belief, Fox, has orchestrated a virtually identical
fraudulent scheme for many years. As a result, investors have filed numerous
lawsuits against the Fox Defendants for the same deceitful and fraudulent conduct
he taught Dragul and set forth herein, including, but not limited to the following:
a. Fayne et al v. Fox et al, San Francisco County Superior Court Case No.
CGC-10-502073, filed on July 30, 2010 (settled and dismissed with
prejudice on August 27, 2013);
b. Konkel v. Fox et al., Los Angeles County Superior Court (“LASC”), Case
No. BC 482 484, filed on April 6, 2012 (settled and dismissed with
prejudice on February 4, 2013);
c. Steve Belkin v. Fox, Superior Court of Massachusetts, Case No.
1581CV1267, filed April 13, 2015, later removed to Federal Court
(settled on appeal);
d. Ross v. Fox, LASC Case No. BC 576 879, filed on March 26, 2015. Ross,
an investor in the Market at Southpark investment (discussed below),
sued the Fox Defendants, Dragul, and several others for (i) Breach of
Fiduciary Duty; (ii) Fraud; (iii) Securities Fraud; (iv) Elder Abuse (on
behalf of Jerry only); and (v) Accounting. Ultimately, the jury returned
a plaintiff’s verdict for approximately $14 million, including $8 million
24
in punitive damages. On June 27, 2019, the Fox Defendants filed a
motion for a new trial, which was ultimately granted on the grounds
that the verdict was allegedly inconsistent because the jury found for
the plaintiff on the fraud and breach of fiduciary duty claims, but not on
the elder abuse claim. 5
e. Lockie v. Fox, LASC Case No. 20STCV13841 filed on April 9, 2020
(pending);
f. Gadi Maier, et al. v. Alan C. Fox, et al., LASC Case No. BC670829
(Settled);
g. Blackford v. Fox, LASC Case No. BC 679 692 (pending);
h. Shofler v. Fox, LASC Case No. BC 679 693 (pending);
i. Positano v. Fox, LASC Case No. BC 722 995 (pending)
j. Kerner v. Fox, LASC Case No. BC 723 521 (pending);
k. Mokotoff v. Fox, LASC Case No. 18STCV01178 (pending);
l. Abrams v. Fox, LASC Case No. 18STCV02200 (pending);
m. Berman v. Fox, LASC Case No. 18STCV05912 (pending);
n. Burger v. Fox, LASC Case No. 19STCV11976 (pending);
o. Stewart v. Fox, LASC Case No. 19STCV16404 (pending);
5 On June 27, 2019, the plaintiffs appealed the court’s ruling granting Defendants’ Motion
for a New Trial which set aside the plaintiff’s judgment, and on July 22, 2019, Fox cross-
appealed. Plaintiffs’ opening brief has been filed, the respondents’ brief and cross-appellants’
opening brief are due shortly. Oral arguments are likely to be scheduled for the end of 2020.
25
p. Aepli v. Fox, LASC Case No. 19STCV43821(pending);
q. Gerzberg v. Fox, LASC Case No. 19STCV44851(pending);
r. Alon v. Fox, LASC Case No. 19STCV45048 (pending);
s. Menkes v. Fox, LASC Case No. 19STCV45365 (pending); and
t. Reker v. Fox, LASC Case No. 20STCV00211 (pending).
80. On or about September 3, 2018 the Kahn Defendants sent a $30,000
invoice to ACF stating it was for the following service: “Reimbursable expense:
August Retainer for Ross Judgment Appeal. Mitigation and Containment
Advisement (approximately 100 hours).” The Kahn Defendants sent a second invoice
for the month of September reflecting the same amount with an identical description
of the work included in the invoice as the prior months. Copies of the invoices are
collectively attached as Exhibit 26. The September 3rd invoice was sent four days
after the Receiver was appointed.
81. Importantly, the Kahn Defendants never entered an appearance in the
Ross matter on behalf of Dragul, the named GDA entities, the Fox Defendants, or any
other Defendant. Notwithstanding this, upon information and belief, the Fox
Defendants paid the Kahn Defendants for legal advice to mitigate and contain.
82. The SEC has instituted a civil enforcement action against Hershey, his
business partner, Dana Bradley, PHI, and a number of their other joint venture
entities for violations Section 17(a) of the Securities Exchange Act of 1993 [15 U.S.C.
§ 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §78j(b)] and
26
Rule 10b-5 thereunder [17 C.F.R. §240.10b-5], and Section 15(a)(1) of the Exchange
Act [15 U.S.C. § 78(o)(a)(1)]. See SEC v. Bradley, Hershey, et al.; Case No. 3:19-cv-
00490 (U.S. District Court, W.D. N.C., Charlotte Division). The conduct for which the
Receiver asserts claims against the Hershey Defendants is substantially similar to
the conduct is the basis of the claims asserted by the SEC: fraudulently solicitating
investors and pocketing millions in undisclosed and illegal commissions.
83. To solicit investor funds, Dragul, in concert with the Fox and Hershey
Defendants, sent prospective investors offering materials that contained executive
summaries, financial projections, and other information (collectively, the
“Solicitation Materials”), which purportedly provided investors with the material
information needed to evaluate whether or not to invest in Dragul’s Sham Business.
84. Generally, the Solicitation Materials sent to prospective investors were
created by or at the direction of Dragul and his staff, and in some instances the Fox
Defendants.
85. The Solicitation Materials contained information material to
prospective investors, including historical information about the property, the cost of
acquiring the property, the amount of the down payment, the amount to be borrowed,
the anticipated closing costs, and the amount needed to be raised from investors for
any particular offering. The financial projections included projections of acquisition
costs and expenses.
27
86. The Solicitation Materials contained false and misleading information,
including inflated purchase prices and inflated closing costs for the properties and in
some instances misrepresented the structure of the investment.
87. As discussed in detail below, in soliciting investments, Dragul and the
other Defendants, told prospective investors that the properties to be acquired cost
substantially more than they actually did. These misrepresentations about purchase
price were designed to allow Dragul, the Fox Defendants and the Hershey Defendants
to pay themselves impermissible commissions and fees as set forth below:
Defendant Total Commissions Received
Gary Dragul $19,148,047.10
Markusch Defendants $310,196.67
Kahn Defendants $1,701,441.92
Fox Defendants $10,200,304.81
Hershey Defendants $3,175,655.54
Summary charts reflecting the above commissions are attached as Compl. Exs. 3, 4,
5, 7, and an updated version of the summary chart reflecting the Fox Defendants
Commissions, is attached as Amended Exhibit 6.
88. In most instances, the properties had already been purchased when
Dragul, and the Fox and Hershey Defendants distributed the Solicitation Materials
to prospective investors, but the Solicitation Materials failed to disclose this material
fact.
89. The undisclosed and illegal fees Dragul, the Markusch Defendants, the
Kahn Defendants, the Fox Defendants and the Hershey Defendants received in
28
connection with this scheme were deducted as closing costs; some fees were charged
during the ownership of the property, typically during refinancing; and some were
charged in connection with the sale of certain properties as reflected in the following
three examples:
i. The Market at Southpark
(7901-8051 S. Broadway, Littleton, CO)
90. On or about January 26, 2010, Fox sent Dragul Solicitation Materials
prepared by ACF to solicit investment funds for a property known as the Market at
Southpark.
91. The Executive Summary prepared by the Fox Defendants, and which
the Fox Defendants knew would be and in fact were distributed to prospective
investors by both Dragul and Hershey in 2010, stated that the purchase price for the
property was $24,750,000, and that it would be necessary to raise $10,500,000 from
investors. The Solicitation Materials the Fox Defendants prepared misrepresented
and failed to disclose material information including the actual purchase price,
estimated closing costs, and other material financial information. See Compl. Ex. 8.
92. Once received from Fox, Dragul forwarded the Market at Southpark
Solicitation Materials to Hershey to distribute to prospective investors in or about
April 2010.
93. Upon receipt in April 2010 and thereafter, Hershey distributed the
Market at Southpark Solicitation Materials to prospective investors, who relied on
them for their investment decision.
29
94. By distributing the Solicitation Materials to induce investors and
prospective investors in 2010, Hershey deliberately withheld or failed to disclose
material information to prospective investors concerning the Market at Southpark
including the actual purchase price, estimated closing and other costs, material
financial information, and that the Hershey Defendants stood to profit from any
investment they would make in the SPE.
95. At or about the same time, and with the actual intent to induce investors
to invest in the property, Dragul sent the Market at Southpark investors written
financial projections misrepresenting that the purchase price of the Property was
$24,750,000 and closing costs were estimated to be $300,000, and that he would
establish an operating reserve of $950,000 with the funds raised from the offering See
Compl. Ex. 8.
96. Upon information and belief, the Fox Defendants never maintained an
operating reserve for the property. Instead, Fox, like Dragul, comingled the funds
that should have been earmarked as reserved with funds from the rest of ACF’s
operations and when necessary, moved money from account to account.
97. In fact, the purchase price of Market at Southpark was $22,000,000,
$2.75 million less than Dragul and the Fox and Hershey Defendants represented to
investors. See Compl. Ex. 9.
98. On August 11, 2009, Market at Southpark 09, LLC, an entity owned
and/or controlled by the Fox Defendants, purchased the Southpark property for
30
$22 million. At closing, ACF received a $950,000 “consulting fee,” Dragul, through
GDA received $300,000 as a “consideration fee,” and through his SSC 02, LLC entity,
another $50,000 in fees. See Compl. Ex. 9.
99. The “Financial Projections” contained in the Solicitation Materials,
which Fox and Dragul knew were false and misleading, since at the time the purchase
escrow had already closed and the real figures were available, failed to account for
undisclosed and unauthorized commissions taken from escrow by Fox and Dragul.
100. The “commissions” taken from escrow on the property were used in
furtherance of Dragul and Fox’s overall scheme to defraud. On August 10, 2009, Fox
informed Dragul the $350,000 in “fees” paid to Dragul from escrow on the property
would be transferred into yet another SPE account for the September 2009 loan
payment on an airplane owned by Dragul and Fox.
101. Between June and August 2010, several months after the property had
been purchased, Dragul raised approximately $255,000 from six individual investors
(the “Southpark Investors”) from the sale of 100% of the membership interests in
GDA Market at Southpark, LLC, which in turn, held a 6% interest in Market at
Southpark 09, LLC, an entity formed and controlled by the Fox Defendants. See
Southpark Investor Detail Chart, attached as Exhibit 28. The Southpark Investors
reasonably relied on the statements and information contained in the Solicitation
Materials and the statements made by the Hershey Defendants who distributed the
Solicitation Materials.
31
102. The Market at Southpark Solicitation Materials that Dragul and the
Hershey Defendants distributed to prospective investors failed to disclose that the
membership interests being offered were interests in an SPE – GDA Market at
Southpark, LLC – that was a member in yet another entity controlled by the Fox
Defendants which owned the real estate. The misleading Solicitation Materials
completely omitted any disclosure regarding the actual ownership structure of the
investment (i.e. that they were investing in an entity which held a 6% interest in
another entity that owned the property) and as such, Dragul and the Hershey
Defendants’ material misstatements led the Southpark Investors to believe that their
investments were in the SPE directly owning the property.
103. Moreover, Fox offered and sold membership interests in Market at
Southpark at different rates to different categories of investors (i.e., gave greater
percentage interests for less money to close family and friends), effectively diluting
the Southpark Investors membership interests. For instance, on July 20, 2009, Fox
instructed his employee that ACF’s total investment for 100% in Market at
Southpark would be $8.5 million for some Fox family members and $9.5 million for
others. In the Solicitation Materials provided to Southpark Investors, Fox and Dragul
represented that a minimum investment of $52,500 would purchase a 0.500%
membership interest, yet at least one of Fox’s family members, Sara Fox purchased
a 1.500% interest at the reduced price of $127,500 (a $30,000 discount). See
07/20/2009 Fox Email, attached as Exhibit 27.
32
104. These misstatements and omissions were designed by Dragul, Fox and
Hershey to mislead prospective investors and induce them into investing in the
Market at Southpark SPE.
105. On May 13, 2011, the Fox Defendants sent an update letter to the
members of Market at Southpark 09, LLC, including to Dragul as the manager of
GDA Market at Southpark, LLC, concerning a proposed sale of the property seeking
approval by a majority of members to sell the property and roll over investments into
an unidentified exchange property. In the letter, Fox makes false and misleading
statements to obtain consent to the sale and exchange by a majority of the Members.
For instance, the Fox Defendants represented that the total original investment in
the property was $10.5 million in August 2009, suggesting that all membership
interests offered were sold. Upon information and belief, the Fox Defendants did not
sell all interests offered and an amount significantly less than that was raised and
invested in the property.
106. Dragul did not provide his investors with any update or information
concerning the prospective sale of the property in which they had invested, and
instead, on May 17, 2011, as manager of GDA Market at Southpark, LLC, Dragul
executed a ballot authorizing ACF to sell the property “for a net price of not less than
$28,350,000.00 before paying off the loan.”
107. The Fox Defendants sent another property update letter to the
investors, which Dragul again received again as manager of GDA Market at
33
Southpark, LLC, concerning the still pending sale of the property. Enclosed with the
letter was a “client summary report” for GDA Market at Southpark, LLC’s
investment reflecting that is now held a substantially reduced interest in Market at
Southpark 09, LLC of 2.429%. Again Dragul never disclosed any of this information
contained in the correspondence to the Southpark Investors.
108. As was common practice, Dragul and his staff sent periodic updates for
investors that provided leasing and income information for each property. For
properties for which Hershey solicited and raised investor funds, Dragul allowed and
even invited Hershey to edit and comment on property updates before sending them
to investors.
109. Both the August and November 2011 Market at Southpark property
updates drafted by Dragul with input from Hershey that were sent to investors did
not include any mention of a plan to market and sell the property or Dragul’s decision
to do so as manager of GDA Market at Southpark, LLC. See Compl. 10A and 10B.
110. Both Dragul and Hershey knew of the plan to sell the property, as the
transaction was pending when the November 2011 property update was prepared,
but that information was not disclosed to investors, and Dragul continued to make
distributions to them as fictitious profits on their Market at Southpark investment.
111. On November 15, 2011, five days after Dragul sent the November 2011
Property Update letter to Southpark Investors, Dragul and the Fox Defendants sold
the Market at Southpark property for $30 million. At closing, ACF and Dragul
34
(through GDA) received commissions of $600,000.00 and $300,000, respectively. See
Compl. Exhibit 11.
112. Notwithstanding the $13,038,594.47 net proceeds received at closing,
Dragul and the Fox Defendants required the Market at Southpark investors to “roll
over” their investments into two new properties rather than allowing them to cash
out by collecting their pro rata share of the sales proceeds.
113. Dragul and the Fox Defendants received at least $2.2 million in
undisclosed fees in connection with the acquisition and sale of the Market at
Southpark, which were never disclosed to investors. The misrepresentations as to the
purchase price of the property helped to further disguise these undisclosed fees and
commissions from investors.
114. In March 2012, Dragul finally provided an investor update letter to the
Southpark Investors telling them the property had been sold. In the letter, Dragul
misrepresented that GDA Market at Southpark, LLC, which holds a 6.00% interest
in Fox’s SPE (and a 2.49% interest in the property), “was not in a position to control
the outcome with respect to the sale and vote to exchange into another property.”
Dragul failed to disclose that he had executed a ballot approving the sale and voting
for an exchange several months before.
115. Having received the GDA letter, disgruntled Southpark Investors began
reaching out to Hershey demanding answers and expressing concern that they had
not been informed about the sale and asking why their distributions had been
35
suspended for the past two months. Upon information and belief, the Hershey
Defendants knew the property had been sold before the March 2011 letter was sent
but failed to disclose it to the Southpark Investors.
116. On March 16, 2012, one of Dragul’s employees, Elizabeth Freestone,
responded to emails from D.H., one of the Southpark Investors demanding an
explanation as to what happened and why he was not informed. Freestone, stated
again that the Dragul-controlled entity GDA Market at Southpark, LLC held only a
minority interest, and misrepresented that “the 1031 exchange of the proceeds into
two new properties is now complete and investment information on both properties
will be provided shortly. Combined distributions on the two properties will be 28%
higher than distributions on Market at Southpark and will result in an 8.06% annual
return on exchanged investment and a 10.57% annual return on your original
investment.”
117. Dragul required that he give his approval of all proposed investor
correspondence in advance of his employees mailing or emailing same. Thus, the
statements and representations made to the Southpark Investors, including the
foregoing misrepresentations made to D.H. were expressly authorized by Dragul.
118. Upon information and belief, Fox did not obtain approval from a
majority of members of Market at Southpark 09, LLC to sell the property and
exchange the proceeds into new investments. Nonetheless, Fox sold the property and
on February 1, 2012 told the investors, including Dragul on behalf of GDA Market at
36
Southpark, LLC, that the first of two exchange properties had been identified –
Loggins Corners, a shopping center at 1681 Old Pendergrass Road, Jefferson Georgia
(“Loggins”), which had been purchased on January 31, 2012.
119. As was customary, GDA’s so-called “acquisition team” employees
conducted the due diligence and identified the Loggins property for and on behalf of
ACF.
120. A total of $1,937,500.00 was exchanged from the sale of Southpark into
Loggins pursuant to Section 1031 of the Internal Revenue Code.
121. Fox’s February 1, 2012 letter to the investors, including to Dragul as
manager of GDA Market at Southpark, stated that GDA Market at Southpark, LLC
would own 2.824% of the new property.
122. Enclosed with the February 1, 2012 investor letter from the Fox
Defendants were Solicitation Materials for Loggins which stated that the purchase
price for the property was $7,187,500. In fact, the property was purchased for $5.25
million – Fox and Dragul thus knowingly overstated the price by nearly $2 million.
See 2/01/12 ACF Letter and Loggins Solicitation Materials, attached as Exhibit 29,
at 2.
123. The Loggins Solicitation Materials also represented that $3.75 million
in cash was required, factoring in the inflated purchase price of $7.817 million, loan
and closing costs of $200,000, operating reserves of $300,000 less a new $3,937,500
loan. The purported “projections” omitted GDA’s $150,000 commission taken from
37
escrow of the Loggins purchase on January 12, 2012, which was not authorized by or
disclosed to the Southpark Investors. Id.
124. Moreover, upon information and belief, the Fox Defendants never
maintained an operating reserve of $300,000 as represented in the Loggins
Solicitation Materials. Rather, like Dragul, Fox comingled all of the funds from ACF’s
operations, including investment funds, in an account other than the designated SPE
account. See id, at p. 2.
125. In February 2012, Fox and Dragul represented to Southpark Investors,
through the distribution of the Loggins Solicitation Materials, that they could acquire
a 1.000% interest in the property for a minimum investment of $37,500. Upon
information and belief, as he did with Southpark, Fox offered and sold membership
interests to insiders at an undisclosed reduced rate, thereby diluting the Southpark
Investors’ interests therein without commensurate consideration. See id.
126. On February 9, 2012, the Fox Defendants provided investors, including
Dragul on behalf of GDA Market at Southpark, with information regarding the
second exchange property for Market at Southpark had been recently acquired,
Tower Plaza, a shopping center located at 3471-3511 North Salida Court, Aurora,
Colorado (“Tower Plaza”). In the investor letter, Fox represented that GDA Market
at Southpark, LLC would own 2.927% of the property, which would have an estimated
cash flow of 8.06% and a projected annual return of 10.08%. See ACF Investor Letter
and Tower Plaza Solicitation Materials, attached as Exhibit 30, at 2.
38
127. Enclosed with the February 9, 2012 investor letter from the Fox
Defendants were the Solicitation Materials for Tower Plaza which stated that the
purchase price for the property was $18.25 million when in fact,, the property had
already been purchased for $17.025 million. See id.
128. In February 2012, Fox and Dragul represented to Southpark Investors,
through the distribution of the Loggins Solicitation Materials, that they could acquire
a 0.750% interest in the property for a minimum investment of $58,500. Upon
information and belief, as he did with Southpark, Fox offered and sold membership
interests in Tower Plaza to Fox insiders at an undisclosed reduced rate, thereby
diluting the Southpark Investors’ interests therein without consideration.
129. The Tower Plaza Solicitation Materials also represented that $7.8
million in cash was required, factoring in the inflated purchase price of $18.25
million, loan and closing costs of $250,000, operating reserves of $300,000 less the
new $7.8 million loan. The purported “projections” omitted GDA’s $180,000
commission and ACF’s $545,000 commission taken from escrow of the Tower Plaza
closing on February 9, 2012, neither of which were authorized or disclosed to the
Southpark Investors. See Ex. 30, at 3.
130. Moreover, upon information and belief, the Fox Defendants never
maintained an operating reserve of $300,000 as represented in the Solicitation
Materials. Rather, upon information and belief, like Dragul, Fox comingled all of the
39
funds from ACF’s operations, including investment funds, in an account other than
the designated SPE account. See id.
131. In or about March 2012, Dragul provided the Loggins and Tower Plaza
Solicitation Materials to the Southpark Investors. Because Dragul’s employees were
involved in all aspects of the acquisitions of both properties, he knew the Solicitation
Materials contained materially false and misleading information about the
investment and armed with such knowledge, he convinced the Southpark Investors
to stay in the investment when they had the right to liquidate their interests.
132. Fox knew and expected Dragul would provide both the Loggins and
Tower Plaza Solicitation Materials that he prepared to the Southpark Investors and
that the investors would reasonably rely on the facts and material information
contained therein.
133. On February 20, 2016, the Fox Defendants closed a refinance of the
Loggins loan used to acquire the property in 2012. From the new $4.5 million loan,
ACF received an undisclosed and unauthorized commission of $45,000, which
represented equity in the property to which the Southpark Investors were entitled.
134. Dragul never disclosed the 2016 Loggins refinance, or ACF’s commission
taken therefrom to the Southpark Investors.
135. On April 23, 2018, shortly after Dragul’s First Indictment, the Fox
Defendants sold Loggins for $6.625 million.
40
136. From escrow of the sale, GDA received $99,371 in so-called fees, which
were deposited in the GDA RES account and distributed as follows:
Amount Description
$99,371.00 “GDA Fee” from escrow of Loggins sale
($57,000.00) Gary Dragul (personal account)
($27,321.00) Replenish negative balance on GDA RES Fortis
account no. x2984 (Investor Note Payment account)
($7,500.00) Ronen Sadeh Consulting
($7,500.00) Transferred to various GDA SPE property accounts
($50.00) Bank Fees
$0.00 Total
137. Upon information and belief, the Fox Defendants did not obtain
approval from a majority of the members of the ACF controlled SPE that owned the
Loggins property to sell it.
138. On June 25, 2018, the Fox Defendants reported to Dragul, as manager
of GDA Market at Southpark, LLC, that the Loggins sale had closed and enclosed a
check for $70,767.55 representing the GDA Market at Southpark, LLC’s share of the
sales proceeds. Fox knew or should have known that Dragul would not distribute
those funds to the Southpark Investors, whose identities Fox knew because Dragul
had given him the Membership Purchase Agreements. Despite that knowledge, Fox
did nothing to ensure or confirm that Dragul’s downstream Southpark Investors
actually received their distributions.
41
139. Of the Loggins sales proceeds deposited on July 5, 2018, into the GDA
RES Fortis bank account number x3186, Dragul, who did not own a membership
interest in GDA Market at Southpark, LLC and was therefore not entitled to any of
the proceeds, spent the money as follows:
Amount Description
$70,767.55 GDA Market at Southpark, LLC’s Loggins Corners Sale
Proceeds
($56,981.12) Transferred to GDA RES Fortis Acct. No. x 29846
($6,500.00) Transferred to GDA Client Trust Fortis Acct No. x31517
($3,071.42) Transferred to Gary Dragul’s personal account
($2,200.00) Cornerstar Wine & Liquor, LLC
($1,909.50) Audrey Ahrendt (Dragul’s mother-in-law)
($105.51) Bank Fees
$0.00 Total
140. As of the date the Receiver was appointed, Dragul never disclosed to the
Southpark Investors that Loggins had been sold or that he kept all of the proceeds
owed to GDA Market at Southpark, LLC and the Southpark Investors. When, on
November 18, 2018, the Receiver asked Dragul about the Loggins investment, Dragul
misrepresented to the Receiver that had been sold in the summer of 2018 and that
6 Of the $56,981.12 transferred into the GDA RES account, $50,071.63 was used to pay down
an American Express credit card balance.
7 The $6,500 transferred to the GDA Trust Account was eventually used, along with other
improperly transferred funds, to make distributions to other Dragul investors, but not to pay
the Southpark Investors.
42
distributions of $70,000 were to be made to investors, but were not because of the
filing of the Enforcement action.
141. Only after the Receiver’s comprehensive analysis of the GDA server,
emails, and other document collections obtained from third parties was it uncovered
that Dragul kept the Loggins sales proceeds for his personal use and benefit, and
failed to pay them to the Southpark Investors.
142. Moreover, upon information and belief, Dragul and the Fox Defendants
misappropriated more money from investors and the property than is represented on
the settlement statements, through additional undisclosed fees and/or secret profits.
ii. Plaza Mall of Georgia North
(3410 & 3420 Buford Drive, Buford, Georgia, 30519)
143. Beginning in or about 2008 and continuing through 2016, Dragul
provided prospective investors with at least three different versions of an Executive
Summary and Financial Projections for a property in Buford, Georgia known as Plaza
Mall of Georgia, North (“PMG”) for the purpose of soliciting investments therein. See
Compl. Ex. 12 (PMG Solicitation Materials, V.1); the PMG Solicitation Materials,
V.2 attached as Exhibit 31; PMG Solicitation Materials, V.3, attached as Exhibit
32.
144. The first version of the Executive Summary prepared by Dragul and
distributed to prospective investors, upon information and belief from 2008 through
2012 represented that the purchase price for the property was $26,979,567.00, and
that it would be necessary to raise $7,667,346.00 from investors with $100,000
43
minimum investments on which they could expect an 8% return. See Compl. Ex. 12,
at 1.
145. On November 14, 2008, per Dragul’s instructions, his staff forwarded
the first version of the PMG Solicitation Materials to Hershey, for the express purpose
of his distributing the Materials to prospective investors in PMG for which Hershey
would receive a 10% commission from Dragul. Id.
146. At or about the same time, and with the actual intent to induce investors
to invest in the property, Dragul sent prospective PMG investors written financial
projections for the property misstating the $26,979,567 purchase price and
representing that loan and closing costs were estimated at $300,000, and providing
for an operating reserve of $950,000 and loans payable in the amount of $19,930,221.
See id, at 2.
147. In fact, the purchase price of PMG was only $25.92 million, or
$1,059,567 less than Dragul represented in the Solicitation Materials. See Compl.
Ex. 13.
148. The subsequent versions of the PMG Solicitation materials also
contained material misrepresentations as to the purchase price of the property, and
contained varying figures for both the projected returns on the investment, and the
minimum investment required. For instance, in a second version which, upon
information and belief, Dragul and Hershey distributed to investors in 2013,
represented that the purchase price for the property was $29,113,618 and for a
44
minimum investment of $100,000 investors would get a 7% return on their
investment. See Ex. 31. In yet a third version Dragul and Hershey distributed to
investors from 2014 to 2015, Dragul represented the purchase price was $28.47
million and for a minimum investment of $100,000, investors could expect an 8%
return on their investment. See Ex. 32.
149. Based on the three versions of the PMG Solicitation Materials, Dragul
raised $2,740,150 in new cash from 46 investors (the “PMG Investors”) from 2008
through 2016. See PMG Investor Detail Chart, attached as Exhibit 33. Dragul
“rolled over” approximately $2,449,850 from some of the 46 investors’ prior
investments in various failed GDA SPEs.
150. On December 24, 2008, Dragul, through Plaza Mall North 08 B Junior,
LLC (“North 08 B”), purchased the PMG Property from Windward Star Associates,
LLC (“Windward”) for $25.92 million, $1.06 million less than the amount represented
in the Solicitation Materials. See Compl. Ex. 13.
151. Dragul also created a separate entity, Plaza Mall North 08 A Junior,
LLC (“North 08 A”) which became a member of North 08 B, the owner of the Plaza
Mall property. The operating agreement for North 08 B stated that North 08 A made
an initial capital contribution of $4.766 million to the company; Windward, which
also became of a member of North 08 A, and was credited with a contribution of $1.204
million, an amount reflecting $5.17 million in equity minus a distribution of $3.966
million. See Compl Ex. 2, at ¶ 14; see also Compl Ex. 13.
45
152. Upon completion of the transaction, North 08 A and Windward held
76.7% and 23.3% interests, respectively, in North 08 B, and thus, the property. Id.
153. Through the escrow for Dragul’s purchase of PMG, ACF was paid a
“consulting fee” of $500,000.00; GDA was paid a fee of $300,000.00 with Dragul’s
“SSC” entity receiving another $75,000 in fees. See Compl Ex. 13.
154. Of the $9,858,000 Dragul used to acquire North 08 A and, the 76.7%
interest in North 08 B, Fox through his irrevocable trust (the “Fox Trust”) loaned
Dragul $5.2 million to complete the acquisition, with the understanding that Dragul
would repay Fox with funds raised from investors. On December 4, 2008, Dragul told
Fox that he could raise $1.25 million by December 31, 2008, $1 million by February
15, 2009, $1 million by March 31, 2009, $1.5 million by July 31, 2009 and $2.5 million
by September 31, 2009. Ultimately, Dragul repaid Fox $990,000 in the months
following the closing, making the Fox Trust’s net investment in North 08 A $4.21
million.
155. In 2015, in reliance on the misleading third version of the PMG
Solicitation Materials distributed by Dragul and the Hershey Defendants, Dragul
induced several of the PMG Investors to “roll over” a total of $413,000 previously
invested in other failed GDA SPEs, or converted from outstanding promissory notes
sold by Dragul in prior years, to acquire ownership interests in the North 08 B entity.
See Ex. 33.
46
156. To give these additional new “investors” their membership interests in
North 08 B entity, Dragul diluted the interests of existing PMG Investors who had
invested real money in the deal. Upon information and belief, Dragul did not disclose
the dilution to the existing PMG Investors.
157. On April 1, 2016, the Fox Trust entered into an agreement to sell its
entire interest in North 08 A to another newly-formed Dragul SPE, Plaza Mall North
16, LLC (“North 16”) for $3.8 million. At that time, the Fox Trust held a 45.098%
interest in North 08 A, which represented a 34.56% interest in the North 08 B entity
and thus, the PMG property. See Compl. Ex. 2, at ¶ 18. The transaction was
accomplished in two phases. The transaction was reflected in a Membership Interest
Purchase Agreement dated February 17, 2016 and amended on March 30, 2016 in
which the Fox Trust sold 45.098% of its interest in North 08 A to North 16.
158. The funding for North 16’s purchase of the Fox Trust’s interest in North
08 A came from Hagshama, an Israeli real estate investment company, which
contributed capital through two SPEs: Hagshama Atlanta 19 Buford, LLC and
CoFund 3, LLC. In exchange for Hagshama’s payment of $4.6 million ($2,631,579
from Hagshama Atlanta and $2 million from CoFund 3), the Fox Trust transferred
its 45.098% interest in North 08 A to North 16. As a result, Hagshama, through its
interest in North 16, obtained a 34.59% ownership interest in North 08 B. The
transaction closed on April 1, 2016, and from escrow, GDA received an “acquisition
fee” of $100,000, a $24,600.00 “fee” was paid to CG despite $100,000 already paid in
47
legal fees to a different law firm, and a “consulting/loan assumption fee” of $25,400
was paid to Markusch. See Compl. Ex. 14; see also Compl. Ex. 2, at ¶ 18.
159. On April 27, 2017, Dragul, through North 08 B, sold the PMG property
(via transfer of the entirety of North 08 B’s interest in the property to an unrelated
third-party buyer) for $32 million. At closing, GDA received a “fee” of $560,000,
Windward was paid $1.204 million for its membership interest, and other expenses
were deducted. The net sales proceeds were $9.867 million. See Compl. Ex. 15.
160. Of the $9.867 million in net sale proceeds, the two largest investors were
paid first: CoFund 3 received $2.447 million and Hagshama Atlanta received $3.22
million. For its part, GDA received $4.191 million, an amount sufficient to repay less
than half of what Dragul raised from and owed to his smaller, non-preferred
investors. However, not only did Dragul fraudulently conceal that the PMG property
had been sold, he continued to make monthly payments of fictitious profits to these
smaller PMG Investors as though the Plaza Mall property were still owned by North
08 A.
161. From April through September 2018, one year after the sale of the Plaza
Mall property, the Kahn Defendants incurred $25,045.64 in legal fees for work done
in furtherance of Dragul’s fraudulent Scheme. Knowing Dragul had not informed
PMG Investors that the Plaza Mall property had been sold in April 2017, in his
capacity as counsel for Dragul and the GDA Entities, Kahn provided consultation and
legal advice to Dragul regarding purported “reconciliation” of investor distributions
48
from PMG sales proceeds, “Manager advisement,” tax filings, post-tax filing
reconciliations, retroactively remedying entity organizational gaps, winding down
and dissolution of the entities, including “attendant risk, funding needs and liability
mitigation.” See 7/23/2018 CG PMG Invoice, attached as Exhibit 34.
162. In 2018, Kahn even assisted in drafting correspondence to the PMG
Investors to be sent under Dragul’s signature regarding PMG.
iii. Fort Collins WF 02, LLC
Highlands Ranch, Meadows Shopping Center,
Southwest Commons, Laveen Ranch and Tower Plaza
163. On October 15, 2002, Dragul formed and organized the SPE, Fort Collins
WF 02, LLC (“FC WF 02”) and on January 23, 2003, Dragul and Fox executed its
operating agreement showing they owned 51% and 49% respectively.
164. Upon information and belief, FC WF 02 had originally owned a Whole
Foods center at 2201 S. College Avenue, Fort Collins, Colorado, until it had been sold
on or about May 6, 2005.
165. The proceeds from the Whole Foods sale were subsequently exchanged
into three new properties, ultimately owned by Fox SPEs – (1) Highlands Ranch
Village II Center, in Highlands Ranch Colorado (“Highlands Ranch”); (2) Meadows
Shopping Center (“Meadows”), in Lone Tree Colorado; and (3) Southwest Commons
(“SW Commons”) in Denver Colorado.
49
166. On May 19, 2005, newly formed Fox SPE’s purchased Highlands Ranch
for a total purchase price of $29.125 million. From escrow, Dragul received $300,000
and ACF received $300,000 as “consideration.”
167. The portion of proceeds rolled over and attributed to FC WF 02, a
member in the Fox SPE that owned the property, was $750,000 for a 7.5% interest in
the Fox SPE, which owned the Highlands Ranch property.
168. On June 9, 2005, newly created Fox SPE’s purchased the second
replacement investment property, Meadows, for a total purchase price of $33 million.
Dragul received a $400,000 commission directly from escrow.
169. Upon information and belief, upon the acquisition of Meadows, FC WF
02 had an 8.264% interest in the real property, Meadows.
170. On August 18, 2005, the third and final replacement investment
property, SW Commons, was purchased. But this one was first purchased by GDA
RES for $55.821 million and on the very same day, in a separate transaction, GDA
RES sold the property to newly formed Fox SPEs, Southwest Commons 05 A through
I, LLC, for $59.5 million, a $3.69 million profit. FC WF 02 was the sole member of
Southwest Commons 05 E, LLC, and owned a 5.5% interest in the real property, SW
Commons.
171. Fox and Dragul each took undisclosed and unauthorized commissions
from escrow in the second sale of SW Commons of $400,000 and $500,000,
respectively.
50
172. Beginning in 2008, Dragul began sending solicitation materials to
prospective investors fraudulently representing that their investment would be used
for the three investment properties, Highlands Ranch, SW Commons and Meadows,
when in fact, Dragul was soliciting funds to repay nearly $3.3 million Fox had loaned
him for personal and business purposes unrelated to the FC WF 02 properties.
173. In addition to Dragul’s solicitation efforts, in or about April 2008, Dragul
provided Hershey with materials on the three properties in which FC WF 02 held an
interest for the purpose of Hershey to solicit prospective investors to buy membership
interests in those properties. Specifically, Dragul authorized Hershey to sell up to
$650,000 in membership interests, for which Hershey would receive a 6% commission
on each investment made.
174. On April 24, 2008, Dragul told Hershey that he should tell prospective
investors that the return on their investments would be 7% and provided copies of
the rent rolls for the properties assuming that these rent rolls would be of more value
to prospective investors than formal Solicitation Materials.
175. In soliciting investors in 2008, neither Dragul nor Hershey provided
material information to prospective investors for the three properties, that would
allow them to make informed decisions, such as the purchase price of each property,
the total amount being offered, financial projections, information on any of the three
loans in place, the projected length of the investment, and the like.
51
176. As of March 22, 2009, Dragul had sold all of the membership interests
in FC WF 02, LLC to approximately 40 investors who collectively invested $2.36
million in cash and $292,000 in “roll-overs” ($192,000 from Southlake 07 D, LLC and
$100,000 from Walden 08, LLC) (the “FC Investors”). See FC Investor Detail Chart,
attached as Exhibit 35.
177. On February 5, 2009 one of the FC Investors, R.G., whose investment
had been solicited by Hershey, reached out to Hershey and asked what his options
were to cash out his $100,000 investment in the FC WF 02, LLC deal due to financial
strains. Hershey forwarded the email to Dragul for instruction, Dragul responded on
June 9, 2009 but did not provide an option to cash out due to Dragul and GDA’s own
financial strains.
178. There is no provision in the October 15, 2002 FC WF 02 operating
agreement, the Solicitation materials or the Membership Purchase Agreements that
this investor executed and received from Dragul that limits how or when an investor
such as R.G. could cash out of a deal. Nonetheless, Dragul held this investor – and
others in the coming years – hostage, in the deal because the funds invested in this
and all other deals were never actually held in the SPE for which they were intended,
and Dragul’s Ponzi Scheme left GDA with insufficient capital to satisfy its
obligations, including complying with investors’ cash-out requests.
179. At some point in 2009, Dragul diluted all FC Investors’ membership
interests in the SPE, upon information and belief, without their knowledge or
52
consent, in order to “gift” membership interests to “friends of the house,” none of
whom invested actual funds into the deal, but still received monthly distributions
from 2009 through 2018. These additional FC Investors included Dragul’s mother-in-
law, Audrey Ahrendt (3.603%); Dragul (4.3132%); Dragul’s parents, Paul Dragul
(1.8022%) and Paulette Dragul (1.8022%); long-time friends of Dragul, Russel Becker
(3.6034%) and Robert Kauffman through Prima Center 07, LLC (0.4491%); and
Dragul’s loyal employees, Defendant Markusch (1.8022%) and Kristen O’Donoghue
(3.034%). See Ex. 35.
180. On November 20, 2011, Fox, with the assistance of Dragul and the GDA
staff sold the Highlands Ranch property in which FC WF 02 held a 7.5% interest in
the Fox SPE that ultimately owned the property, for $27,634,052 from which Fox and
Dragul took $110,600 and $55,200 in commissions, respectively.
181. Neither Fox nor Dragul provided any notice of the sale to or obtained
consent or approval of any of the FC Investors before the sale, which upon information
and belief, was required by the governing Fox SPE operating agreement.
182. On December 13, 2011, the Fox Defendants sent an update letter to the
investors in Highlands Ranch, including Dragul on behalf of and as manager of FC
WF 02, advising that the property had been sold and the proceeds would be exchanged
into a new property that had not yet been identified, but that the investors could
expect a 20% increase in regular monthly distributions. While the proceeds were
being held by the exchange company, Fox suspended all monthly distributions.
53
183. On January 11, 2012 Dragul informed the FC Investors of the sale and
upon information and belief, fraudulently represented that a majority of the owners
of HR II 05, LLC voted to sell the property and exchange it into another and the FC
Investors “were not in a position to control the outcome.” Dragul provided the FC
Investors with three fictitious options: (1) maintain the investment in FC WF 02 and
reinvest any proceeds from the sale of Highlands Ranch into an exchange property;
(2) a Fox-owned SPE would purchase half of an investment if an FC Investor wished
to cash out, but such payment would not be made until after closing on the exchange
properties and the investor would not receive any distributions for the remaining half
of their investment – essentially surrendering that half to Fox and Dragul; or (3) Fox
would use “best efforts” to find a new investor to buy out those who wished to cash
out, which according to Fox, would take approximately 45 days after the exchange
was completed and would forego all monthly distributions.
184. Almost immediately after Dragul sent the January 11, 2012 “update”
about the sale of Highlands Ranch, several angry FC Investors contacted both
Hershey and Dragul expressing outrage that they were neither informed about the
sale of the property nor given an opportunity to consent to its sale or exchange.
185. In January and February 2012, two different FC Investors S.L. and K.S.,
not only raised these same concerns about the sale but also questioned Dragul and
Fox’s representation that they could expect a 20% increase in monthly cash
54
distributions when, in the same letter, they also represented that a replacement
property had not yet been identified.
186. As was common, instead of responding to these investor inquiries with
information and explanation as to the topic at hand, Dragul instead responded to one
of the two FC Investor’s questions with a lengthy email pointing out all of the hard
work and long hours he and his staff had been working on a bankruptcy filing for an
unrelated SPE – Walden Park. Dragul disingenuously went on: “Education is power
and I welcome you to come and get educated about what we are doing at GDA daily
in favor of our investors.” Ultimately, Dragul provided the investor with no material
information and instead shifted blame to Fox whom he represented had not
responded to his requests for the same information when in fact, Dragul and his GDA
staff had been working directly with Fox and ACF to identify and close on two new
replacement properties.
187. Both Dragul and Fox knew all details about the replacement properties
but withheld that information from the Investors in order to avoid investor objections
or questions about the new acquisitions. In fact, Dragul, on behalf of GDA RES
executed the initial purchase and sale agreement for one of the two replacement
properties (Laveen Ranch Marketplace) on January 12, 2012, and ultimately
assigned it to Fox’s SPE.
188. Upon information and belief, Dragul and Fox intentionally withheld
material information about the two replacement properties from the FC Investors
55
when specifically asked until after escrow closed on both in order to ensure these
Investors’ funds could be used to acquire the new properties and to conceal the
fraudulent transfers made to both Defendants from the closings.
189. In light of the flurry of angry investor calls and emails received by
Hershey and Dragul, Hershey drafted an investor update letter to be sent by GDA
under Dragul’s signature, providing the same false and misleading, vague and
unhelpful statements Dragul had previously provided to S.L and K.S.
190. On March 23, 2012 ACF sent investor update letters, including to
Dragul as manager of FC WF 02, with information on the two newly acquired
exchange properties the FC Investors’ Highlands Ranch investments were exchanged
into – Trophy Club Plaza in Trophy, Texas (“Trophy Club”) and Laveen Ranch
Marketplace in Phoenix, Arizona (“Laveen”).
191. Enclosed in Fox’s March 23, 2012 letter to the FC WF 02 Investors were
the Trophy Club and Laveen Solicitation Materials, both of which were prepared by
the Fox Defendants, which contained materially false and misleading statements and
figures, and which were intended to and did in fact, induce the FC Investors to keep
their money in the deal. See 3/23/12 ACF Letter encl Trophy Club and Laveen
Solicitation Materials, attached as Exhibit 36.
192. The Trophy Club Solicitation Materials represented that the purchase
price of the property was $16.9 million, when in fact it was purchased by Fox’s newly
formed SPE, Trophy Club 12, LLC, on March 15, 2012 for $14.9 million – inflating
56
the price by nearly $2 million. See Ex. 36, at 2; and 3/16/12 Trophy Club Settlement
Statement, attached as Exhibit 37.
193. The Trophy Club Solicitation Materials also represented that $3.887
million in cash was required, factoring in the inflated purchase price of $16.9 million,
loan and closing costs of $250,000, operating reserves of $500,000 less the new
$13.736 million loan. The purported “projections” omitted ACF’s $298,000
commission taken from escrow of the Trophy Club purchase on March 16, 2012, which
was not authorized or disclosed to the investors. Id.
194. Moreover, upon information and belief, the Fox Defendants never
maintained an operating reserve of $500,000 as represented in the Solicitation
Materials. Rather, like Dragul, Fox comingled all of the funds from ACF’s operations,
including investment funds, in an account other than the designated SPE account.
See Ex. 36, at 2.
195. Also enclosed in the March 23, 2012, ACF investor letter sent to Dragul
for and on behalf of WF FC 02 were the solicitation materials for Laveen prepared by
Fox, which contained false and misleading representations intended to induce the FC
Investors to stay in the deal. See id.
196. The Laveen Solicitation Materials prepared and distributed by Fox to
the FC Investors stated that the purchase price was $4.5 million, when it was actually
purchased on March 14, 2012 for $3.88 million - $460,000 less than stated in the
57
Solicitation Materials. See Ex. 36, at 5-6; see also 03/14/12 Laveen Settlement
Statement, attached as Exhibit 38.
197. The Laveen Solicitation Materials also represented that $2.234 million
in cash was required, factoring in the inflated purchase price of $4.5 million, loan and
closing costs of $150,000, operating reserves of $300,000, less the new $2.716 million
loan. The purported “projections” omitted GDA’s $50,000 and ACF’s $75,992.99
commissions taken from escrow of the Laveen purchase on March 14, 2012 neither of
which were authorized or disclosed to investors. See id.
198. Moreover, upon information and belief, the Fox Defendants never
maintained an operating reserve of $300,000 as represented in the Solicitation
Materials. Rather, like Dragul, Fox comingled all of the funds from ACF’s operations,
including investment funds, in an account other than the designated SPE account.
199. Upon information and belief, Fox offered and sold membership interests
in Trophy Club and Laveen at different rates to different categories of investors (i.e.,
gave greater percentage interests for less money to close family and friends),
effectively diluting the FC Investors membership interests.
200. Months after the purchase of Laveen and Trophy Club, on April 27,
2012, Dragul informed the FC Investors that Fox had closed escrow on the two
replacement properties for Highlands Ranch, Trophy Club and Laveen. Without any
intention of locating investors to buy out those who wished to cash out, Dragul
advised that none had been located yet but the efforts were ongoing. Dragul enclosed
58
the Trophy Club Solicitation Materials prepared and distributed by Fox with actual
knowledge that the representations therein were false and misleading, including but
not limited to those set forth in paragraphs 192 through 195 and 197 through 200,
above.
201. On March 24, 2016, the Fox Defendants closed on a refinance of Laveen,
for which Fox obtained a new $3.173 million loan from Morgan Stanley. As was
customary for Fox and Dragul, Fox misappropriated $37,120 from the refinance as a
purported “commission.”
202. On March 20, 2016, Fox informed Laveen investors, including Dragul
for and on behalf of FC WF 02 and its Investors, that he had closed on the refinance.
However, Fox failed to disclose the unauthorized commission taken therefrom.
Because the commission was paid from funds representing equity in the property, the
FC Investors were entitled to their pro rata share which had been misappropriated
by Fox.
203. Also, in the March 20, 2016 letter to investors, Fox represented that the
net loan proceeds from the refinance were $861,196, which “will be reinvested to earn
approximately 4% annually which will add more than $34,000 to annual income.”
204. On September 13, 2018, shortly after the Receiver was appointed, Fox
sent an update letter to the investors in Laveen, including to Dragul for and on behalf
of FC WF 02 and the Investors therein, representing that he had executed a contract
to sell Laveen and seeking investor approval for the sale and authorization to
59
exchange the investment proceeds into a new property. See 9/13/18 ACF Laveen Sale
Letter, attached as Exhibit 39. In the September 13th letter, Fox represented to the
FC Investors that a contract was in place to sell the property for $5.795 million, which
Fox represented, would result in at least $3 million available to distribute to the
investors or exchange into a new property.
205. To obtain the consent of investors to sell the property and exchange the
proceeds into a new property, Fox misstated that $2.334 million in membership
interests had been sold in March 2012 so he could represent an inflated return on the
investment of 34%. In fact, Fox did not sell all membership interests in the project
and as such, the investors’ return was less than 34%. Id.
206. Also to induce the investors to consent to the sale and exchange, upon
information and belief, Fox represented that “a large number of the investor accounts
[were] negative as of December 31, 2017,” but failed to include a statement of WF FC
02’s investor account in the letter and did not advise as to the current balance. Id.
207. Fox asked investors to execute the ballot attached to the letter and
return it no later than September 30, 2018. Id.
208. Neither Dragul nor Fox produced the September 13th Laveen sale letter
or ballot to the Receiver – the only individual with the authority to execute the ballot
approving the sale and exchange – until several months later.
209. On April 1, 2019, Dragul directed his employee to forward the
September 13, 2018 ACF letter to the Receiver and to induce the Receiver to agree to
60
the sale and exchange, represented the sale would produce $71,913 in proceeds to FC
WF 02. See 4/01/19 Email, attached as Exhibit 40.
210. In response, the Receiver requested asked for information about the
investment, including financials, business organization documents and the like, but
received nothing more. The Receiver did not execute the ballot and therefore did not
consent to the sale of the property or the exchange.
211. Upon information and belief, Fox did not obtain consent from a majority
of the investors in Laveen to sell the property. Nonetheless, on April 25, 2019 – only
24 days after the Receiver was first provided with the notice and ballot – Fox sold
Laveen for $6.575 million - $780,000 more than he represented to investors and the
Receiver in his September 30th letter. See Laveen Real Estate Transaction History
Report, attached as Exhibit 41.
212. Fox still refuses to produce the governing organizational documents,
syndication and investor records, financial records, purchase and sale documents,
and other relevant materials the Receiver has requested concerning Laveen Ranch
and the Estate’s other ACF investments. Thus, is it unknown at this time what
proceeds the Estate is entitled to from the sale of the Laveen property, how much Fox
and Dragul misappropriated from escrow in “commissions,” or other details about this
investment.
213. Since the Receiver’s appointment on August 30, 2018, through the
present, the Fox Defendants have withheld monthly distributions of at least $26,248
61
for various projects, including Trophy Club, to which FC WF 02 is entitled. These
distributions are property of the Receivership Estate and as such, the Receiver has
been forced to file a turnover motion to recover the withheld distributions and obtain
relevant documents, which remains pending in the Receivership Court.
214. Fox has claimed he is withholding distributions out of concern that they
will not be paid to downstream investors (i.e., the FC Investors). He expressed no
such concern, however, in the years he made the distributions to Dragul for and on
behalf of FC WF 02, LLC, with actual and/or constructive knowledge that Dragul was
pocketing most of the funds for himself or diverting them elsewhere.
E. Real Estate Transfers Between Dragul and Fox – Prospect Square
215. The Fox Defendants and Dragul routinely transferred SPE properties to
each other at inflated prices in order to pay themselves undisclosed fees at the
expense of investors.
216. For example, in or about October 11, 2007, Dragul, through his newly
created SPE, Prospect Square 07 A, LLC, purchased a shopping center located at
9690 Colerain Avenue, Cincinnati, Ohio known as Prospect Square (the “Prospect
Property”).
217. The purchase of the Prospect Property was financed with a $12.9 million
loan from Royal Bank of Canada, evidenced by an October 10, 2007, promissory note,
which was subsequently assigned and transferred three times before MSCI 2007-
IQ16 Retail 9654, LLC (the “Prospect Lender”) acquired it.
62
218. The Prospect Property was owned as tenants-in-common by five
different SPEs – Prospect Square 07 A, LLC (57.35%), Prospect Square 07 B, LLC
(2.21%), Prospect Square 07 C, LLC (5.54%), Prospect Square 07 D, LLC (4.16%), and
Prospect Square 07 E, LLC (30.74%). The foregoing entities are referred to as the
“Prospect SPE’s”).
219. In the Solicitation Materials prepared by Dragul and provided to
prospective investors, he represented that the purchase price for the property was
$18.33 million, when in fact he purchased the property for $16 million, $2.33 million
less than represented to investors. Compl. Ex. 16.
220. In reliance upon the false and misleading Solicitation Materials
distributed by Dragul and the Hershey Defendants in or about 2007, investors
ultimately contributed approximately $5 million through their purchase of ownership
interests in the SPE that owned the Prospect Property.
221. Hershey was paid $306,000 at the Prospect closing as an undisclosed
and illegal “commissions.” See Compl. Ex. 17.
222. On January 29, 2014, Dragul on behalf of the five Prospect SPEs filed
petitions for bankruptcy under chapter 11 of the U.S. Bankruptcy Code (all five cases
were consolidated into Case No. 14-10896-EEB, U.S. Bankruptcy Court, District of
Colorado).
223. On October 1, 2014, the Prospect SPE debtors filed a motion seeking
bankruptcy court approval of a purchase and sale agreement for the sale of the
63
Prospect Property to Park City Commercial Properties, LLC (“Park City”) for $16.15
million (the “First Prospect PSA”). See Dkt. No. 171 (Case No. 14-10896-EEB, U.S.
Bankr. Court, D. Colo).
224. In connection with the prospective sale of the Prospect Property, the
Prospect SPE debtors entered into a stipulation and settlement agreement with the
Prospect Lender whereby the Lender agreed to accept a reduced payoff on its loan,
which was in default, provided it was paid by December 1, 2014. See Dkt. No. 174
(Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo), at ¶ 7.
225. Edward Delava, the managing member and signatory for the Park City
purchaser in First Prospect PSA, had been Defendant ACF’s CFO since the 1990’s.
226. Neither the Prospect SPE debtors nor the prospective buyer disclosed
the insider relationship among Delava, Fox, and ACF to either the bankruptcy court
or the Prospect Lender.
227. The bankruptcy court approved both the settlement agreement with the
Prospect Lender and the First Prospect PSA on October 21, 2014. See Dkt. No. 182
(Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo).
228. On January 5, 2015, the Prospect Lender filed a Motion for Relief from
the Automatic Stay seeking to foreclose on the Prospect Property because the sale to
Park City had not closed. The Prospect SPE debtors had not provided notice to the
bankruptcy court of the failed sale. See Dkt. No. 196 (Case No. 14-10896-EEB, U.S.
Bankr. Court, D. Colo).
64
229. In response to the Prospect Lender’s foregoing motion, the Prospect SPE
debtors objected to the motion for relief from stay citing extenuating circumstances
beyond the debtors’ control that had prevented the sale from closing:
After entering into the settlement agreement and a third-
party sale agreement that both depended on the current
tenant make-up and rental income stream, the anchor
tenant Kroger announced its intention to expand and
relocate elsewhere. The result was immediate uncertainty
as to the future tenant income stream, and the possibility
that retail income from the property and associated
valuations could drop precipitously. This dramatic turn of
events spooked Debtors’ buyer and the lending community
in the immediate term and will require the Debtors to
engage in rehabilitative leasing and tenant improvement
efforts related to Kroger space. Until the Debtors have
completed such transitional needs, the valuation, sale and
financing opportunities for the property are compromised
or worse.
See Dkt. No. 202 (Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo), at ¶ 9.
230. Upon information and belief, Dragul and his GDA employees, including
Markusch, knew about Kroger’s desire to expand and intention not to renew its lease
upon its expiration in February 2018 at the time of the First Prospect PSA.
231. Notwithstanding this, Dragul, on behalf of the Prospect SPEs,
represented to the bankruptcy court in the objection to the Lender’s motion for relief
from stay that he had no knowledge of this material fact when the settlement
agreement with the Lender and the First Prospect PSA were executed. See Dkt. No.
202 (Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo), at ¶ 7.
65
232. Upon information and belief, the First Prospect PSA was a “stalking-
horse” bid from a related party to the ultimate purchaser – the Fox Defendants – both
of whom were intimately connected to Dragul and the GDA Entities.
233. The Prospect SPE Debtors contended that Kroger’s decision not to renew
its lease, which was set to expire in February 2018, resulted in a significant decrease
in the fair market value of the Prospect Property and that finding a suitable
replacement anchor tenant would take time and money. See Dkt. No. 202 (Case No.
14-10896-EEB, U.S. Bankr. Court, D. Colo), at ¶ 7.
234. In February 2015, the parties eventually reached an agreement
pursuant to which the Prospect Lender was granted leave from the automatic stay to
have a receiver appointed pursuant to its loan documents, among other terms. See
Dkt. No. 204 (Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo).
235. On June 30, 2015, the Prospect Lender and the SPE debtors entered into
a second settlement agreement, pursuant to which, the Lender agreed to accept a
discounted amount of $12.2 million in satisfaction of the $12,418,135.53 outstanding
balance on its loan. See Dkt. No. 230 (Case No. 14-10896-EEB, U.S. Bankr. Court, D.
Colo), at ¶ 7.
236. On July 2, 2015, the Prospect SPE debtors filed a motion seeking
bankruptcy court approval of a second purchase and sale agreement to sell the
Prospect Property to ACF at a a significantly reduced price of $12.2 million, $3.95
66
million less than the First Prospect PSA (the “Second Prospect PSA”). See Dkt. No.
227 (Case No. 14-10896-EEB, U.S. Bankr. Court, D. Colo), at ¶ 7.
237. Under the terms of the Second Prospect PSA, the Prospect SPE debtors
provided an $800,000 credit to the buyer (i.e. ACF), for “Seller’s reasonable
transaction costs,” including inter alia, $350,0000 in attorney’s fees to CG. This
amount was deducted from the reduced payoff amount agreed to by the Lender. Id.
238. Nowhere in the motion seeking bankruptcy court approval of the Second
Prospect PSA are the Fox Defendants’ long-standing relationship and business
dealings with Dragul and, thus, their status as Insiders as defined in the Bankruptcy
Code, disclosed.
239. On July 31, 2015, following ACF’s assignment of the purchase and sale
agreement to Fox’s newly created SPE, Prospect Square 15, LLC, the sale of the
Prospect Property closed for $12.2 million. See Compl. Ex. 18.
240. A total of $818,645.61 for “additional charges” was paid at the closing of
ACF’s July 31, 2015 purchase of the Prospect Property from the chapter 11
bankruptcy estate:
PAYEE CATEGORY AMOUNT
Legal Fees from Escrow:
Brownstein Hyatt Farber Schreck, LLP Legal fees $164,588.36
Seygarth Shaw LLP Lender's legal fees $26,200.00
Robins Calley Patterson & Tucker Legal fees $18,885.26
Kutner, Brinen, Garber P.C. Debtors' (sellers) legal fees $39,073.99
The Conundrum Group Legal fees $350,000.00
Strauss Troy Co. Local legal opinion $4,600.00
Keating Meuthing & Klekamp Lender local legal fees $1,663.00
Brownstein Hyatt Farber Schreck, LLP Additional legal fee $32,100.00
Legal fees from escrow sub-total $637,110.61
67
PAYEE CATEGORY AMOUNT
Other Fees:
Hanley Investment Group Consulting services fee $110,000.00
Indigo Consulting Services dba Indigo
Management Services Consulting services fee $5,500.00
Transpacific Real Estate Consultants Consulting services fee $35,000.00
Global Realty Services Group Environmental & Phase I Reports $2,250.00
The Planning and Zoning Resource
Company Zoning Report $985.00
Thomas Graham & Associates Survey $2,800.00
Park City Commercial Properties Commission $25,000.00
Other fees sub-total $181,535.00
TOTAL ADDITIONAL CHARGES FROM ESCROW $818,645.61
See Compl. Ex. 18.
241. Defendant CG received $350,000 from escrow for a purported “legal fee,”
notwithstanding that approximately $637,110.61 was taken from escrow to pay legal
fees to at least five other law firms. See Compl. Ex. 18.
242. While the Prospect SPE debtors filed an application to employ the Kahn
Defendants, there is no description or statement as to precisely what legal services
Kahn would provide to the debtors – “The Debtors desire to employ the services of
[the Kahn Defendants] to continue its non-bankruptcy legal services, including
general corporate and business matters.” See Dkt. No. 89 (Case No. 14-10896-EEB,
U.S. Bankr. Court, D. Colo), at ¶ 10.
243. When the Prospect SPE debtors filed their bankruptcy petitions, the
Kahn Defendants held a general unsecured claim of $27,277.83 for prior legal
services. Id at ¶ 5.
68
244. Upon information and belief, the Kahn Defendants did no legal work in
connection with the sale of the Prospect property for which legal fees would have been
warranted or properly due and owing from the escrowed funds.
245. The initial stalking-horse buyer of the Prospect Property, Park City
Commercial Properties, which was owned and managed by ACF’s CFO Delava,
received a “commission” of $25,000.00 at closing.
246. Upon information and belief, neither Park City nor Delava were licensed
real estate agents entitled to receive such a commission, nor was such commission
disclosed to the bankruptcy court.
247. The Prospect Square chapter 11 bankruptcy case was closed on
November 4, 2015.
248. On January 22, 2016, nearly six months after the Fox Defendants’
purchase of the Prospect Property, through a newly created SPE, PS 16, LLC, Dragul
repurchased the Prospect Property for $13.8 million, giving the Fox Defendants a
profit of approximately $1.6 million for holding the property for less than six months.
See Compl. Ex. 18.
249. At the closing on Dragul’s repurchase of the Prospect Property, GDA
received $207,000.00, purportedly to reimburse its “due diligence” expenses and
earnest money deposits, CG received $31,727, again, under the guise of legal fees,
and Delava’s entity, Park City, received another $25,0000 “commission.” Id.
69
250. Dragul’s repurchase of the Prospect Property was financed with a new
$12.97 million loan, $4.335 million from Dragul’s institutional investor, Hagshama
and $481,675 in funds ultimately contributed by investors.
251. Even though Dragul’s second purchase of the Prospect Property closed
in January 2016, beginning in or about February 2016, Dragul and the GDA Entities
sent Solicitation Materials to prospective investors seeking investments in GDA PS
Member, LLC, a member in PS 16, LLC with 10% interest therein. See Compl. Ex.
20.
252. In these Prospect Solicitation Materials, Dragul made the following
material misrepresentations to prospective investors:
The 66,846 square foot Kroger store currently does
extremely well with sales in excess of $700 per square foot
which equates to well over $46,000,000 per year. Kroger is
currently paying $7.75 per square foot and their lease
expires February 28, 2018. We have received word that
they plan to move to a much larger newly developed store
across the intersection. The ownership welcomes the
opportunity to have Kroger’s space back as market rent for
this space is upward of $13.75 per square foot. In fact, the
ownership has already received an offer on the space.
Furthering the strength of this property is the lack of
available commercial land in the submarket limiting
competition and allowing an investor to benefit from rising
market rental rates.
Compl. Ex. 20, at 1. This was directly contrary to the representations made by
Dragul to the Bankruptcy Court which attributed the decreased value of the Prospect
to Kroger’s departure and the difficulty of finding a replacement tenant. In fact, as of
70
the date of the Receiver’s appointment, Dragul had not identified a replacement
tenant or re-leased the Kroger space.
253. In reliance on this misrepresentation, four investors who had received
the Prospect Solicitation Materials invested $555,000 in GDA PS Member, LLC (the
“Prospect Investors”). In addition to these investors that contributed cash, Dragul
also “gifted” interests in GDA PS Member, LLC to a friend and his three children,
Charli, Samuel and Spencer Dragul, who did not actually put money into the deal.
See Prospect Investor Detail Chart, attached as Exhibit 42.
254. Dragul informed the Prospect Lender in or about January 2018, that he
would not be able to pay the $12.97 million loan he obtained to finance the purchase
of the Property, which was due in February 2018.
255. As of the date of the Receiver’s appointment, Kroger provided notice of
its intent to terminate the lease early and paid $1.75 million to the Prospect Lender
as an early termination fee, which was credited towards the defaulted loan balance.
256. Dragul and the Prospect lender executed a forbearance agreement on
January 31, 2018, pursuant to which the lender agreed to forebear exercising its
default remedies until May 1, 2018, to allow Dragul time to obtain refinancing.
257. Given his First Indictment, Dragul was unable to refinance the
Property, and defaulted on the forbearance agreement by failing to make May, June,
July, and August 2018 payments.
71
258. On November 29, 2018, the Prospect lender instituted a civil action in
Ohio state court seeking to foreclose on the Property notwithstanding the stay
provisions contained in the Receivership Order.
F. Dragul, Markusch, the Kahn and Fox Defendants’ Conduct Designed to
Thwart the Receiver’s Efforts and Conceal or Impermissibly Transfer
Receivership Estate Assets
259. The Receiver could not have discovered these above-detailed
misrepresentations made to the GDA Entity Investors prior to August 30, 2018
through reasonable diligence because he did not have access to the GDA books and
records, and Dragul refused to produce the SPE books and records to GDA Entity
Investors for inspection despite periodic requests.
260. Even after the Receiver was appointed, Dragul and his staff, including
Markusch, and the Kahn Defendants concealed documents and information from the
Receiver and his counsel and thwarted such efforts to uncover the truth. When
requested, Dragul and his staff provided inaccurate or incomplete information to the
Receiver.
261. Since approximately 2004, Fox and Dragul owned a Rayethon-Hawker
Beechjet 400XP (Serial No. RK-0504, Registration No. N202TT) (the “Airplane”). As
of the date of the Receiver’s appointment, the Airplane was owned by SSC Aviation
06, LLC (“SSC A 06”), which in turn was wholly-owned by SSC Aviation 04, LLC
(“SSC A 04”).
72
262. Pursuant SSC A 04’s First Amended Operating Agreement dated April
1, 2011, Dragul and Fox are the sole members holding 66.67% and 33.3% of the
membership interests therein, respectively.
263. Dragul was the sole manager of SSC A 06 pursuant to a June 2, 2007
transfer and assignment executed by the prior owner in favor of SS A 04 and Dragul
as its sole member and manager.
264. In or about September 2018, shortly after the Receiver’s appointment,
at a time when the Receiver did not have access to any of the GDA server files, books
or records, and was otherwise without access to information regarding this
investment, Fox and Dragul represented to the Receiver that the Airplane’s value
was less than the debt it secured and Fox offered to assume the deficiency on the loan
and dispose of the Airplane.
265. At the same time, in September 2018, Fox and Dragul were working
with L&L International to market and sell the Airplane, but neither disclosed this to
the Receiver.
266. Fox, Kahn and Markusch each had actual knowledge that Dragul was
the sole manager of SSC A 06, and therefore, those management rights, and the
66.67% interest in the Airplane were property of the Receivership Estate.
Notwithstanding this knowledge, Fox, Kahn and Markusch conspired to create false,
back-dated organizational documents for both entities in order to vest control and
management rights in Fox so that he could sell the Airplane without the consent or
73
Receivership Court approval and keep the profits from the sale beyond the reach of
the Receiver.
267. Kahn realized in November 2018 that the SSC A 04 and SSC A 06
entities were missing key organizational documents that transferred management
rights of SSC A 06 to Fox so he could sell the Airplane without the Receiver’s
knowledge.
268. In emails with the prospective buyer in November 2018, Kahn on behalf
of Fox and Dragul, represented to the prospective buyer that Fox was the manager of
SSC A 04 and therefore “ha[d] effective control.” In these emails, on which Dragul,
Fox and Markusch were copied, Kahn acknowledges that any gap in the
organizational documents could normally be fixed with an amendment, but “in this
particular instance we are precluded from doing so because of the existing
receivership order – which is why Mr. Fox is acting as the Manager for SSC [A] 04.”
269. Apparently satisfied with this explanation, the Airplane was sold for
$1.5 million on December 12, 2018.
270. On December 21, 2018, Fox wired $30,000 to Shelly Dragul’s (Dragul’s
wife), Chase bank account with a memo referencing “Sale of Beechjet.” Fox knew the
proceeds were property of the Receivership Estate but he conspired with Dragul and
Kahn to pay them to Dragul instead of the Estate.
271. In January 2019, following the sale, Kahn, having recognized the entity
organization gaps, fraudulently drafted new organizational documents purportedly
74
to address those gaps and ensure that the Fox Defendants could file a claim against
the Receivership Estate for expenses incurred for the Airplane since the Receiver’s
appointment.
272. On January 23, 2019, Kahn with the assistance of Markusch, drafted
and transmitted to Fox, Edward Delava, Eric Diamond (ACF’s new CFO), and Dragul,
the following SSC A 04 entity documents requesting their signatures:
a. A First Amended Operating Agreement, fraudulently back-dated to
June 2, 2007, adding Fox as a manager of the entity, together with
Dragul;
b. A Second Amended Operating Agreement, fraudulently back-dated to
June 14, 2007 to bring the operating documents in conformance with the
loan documents and subsequent Colorado Secretary of State filings; and
c. A Notice of Termination/Dissolution to the Members of SSC A 04
fraudulently back-dated to December 21, 2018, in an effort to resolve
two pending lawsuits filed against the entity.
273. The same day, Kahn sent a second set of fraudulent drafted and back-
dated organizational documents to the same recipients that addressed the entity
organization gaps in SSC A 06:
a. A Second Amended Operating Agreement, fraudulently back-dated to
August 1, 2018, to reflect a change in the Manager from Dragul to Fox.
75
b. A Notice of Capital Contributions fraudulently back-dated to August 1,
2018, which Kahn “designed as a forward thinking document” and
instructed Fox to insert overestimated expenditures for the fictitious
capital call. Kahn added: “This document will become the basis for any
SSC [A] 04 equitable claims submission to the Receivership Estate;” and
c. A Notice of Termination/Dissolution to the Members of SSC A 06
fraudulently back-dated to December 31, 2018 with directions to
dissolve the entity “once it resolves any capital contribution or equitable
claims efforts, and once SSC 06 has closure.”
274. Kahn fraudulently created and back-dated all of the foregoing entity
organization documents for SSC A 04 and SSC A 06 for the express purpose of
manufacturing a purported pre-receivership change in management and a capital call
entitling the Fox Defendants to submit a false claim against the Receivership Estate
for expenses he incurred for the Airplane.
275. Also after the Receiver’s appointment, Fox has systematically refused to
produce documents in response to the Receiver’s numerous requests beginning in
February 2019 and continuing through the present for documents and records
concerning the Estate’s interests in several Fox SPEs, in an effort to conceal Fox and
Dragul’s continuing and pervasive fraud in furtherance of Dragul’s Scheme.
276. Upon information and belief, Fox refuses to provide basic, readily-
available documents such as detailed financial statements, appraisals, and evidence
76
of the debt encumbering the properties held by the Fox Entities to further conceal his
and Dragul’s fraudulent conduct.
277. On June 4, 2019, the Receiver filed a Turnover Motion (the “Dragul
Turnover Motion”) with the Receivership Court demanding that Dragul turnover
various Estate assets he had been concealing and withholding from the Receiver,
including those held by SSC 02, LLC (“SSC 02”) – an entity purportedly owned by
Dragul’s children and managed by his wife. The Dragul Turnover Motion asserted
that SSC 02 was property of the Estate and that all of its assets must be turned over
to the Receiver.
278. Dragul and his family members conceded as much and the Court
approved a settlement agreement on December 17, 2019, that required all of SSC 02’s
assets to be turned over to the Receiver.
279. The Dragul Turnover Motion was served on Fox, his attorneys and
ACF’s CFO via email on June 4, 2019, because Fox and ACF are purported creditors
of the Estate and are therefore entitled to notice of filings therein.
280. SSC 02’s assets included membership interests in three Fox Entities –
Kenwood Pavilion 14 A, LLC (0.581% interest), Fenton Commons (0.221%), and
College Marketplace (0.115%). Both felony charges against Dragul and this
Receivership put Dragul in financial distress. Pursuant to their long-standing
relationship, Fox agreed to assist Dragul by diverting money owed to the Estate.
Notwithstanding his actual notice of the June 4th Dragul Turnover Motion, which
77
asserted that SSC 02 was property of the Estate, in July 2019, Fox purchased SSC
02’s interests in Kenwood, Fenton, and College Marketplace for $60,000.
281. On January 12, 2019, Dragul told Fox he was in desperate financial
condition and asked him for $1 million as Fox had regularly made personal loans to
Dragul disguised as investments for at least the previous 10 years. On April 9, 2019,
the Receiver’s counsel conferred with Dragul’s counsel regarding SSC 02 stating:
we have determined that SSC 02, LLC was funded with
money from various accounts in which investor funds were
deposited and comingled. . . . Considering this information,
the Receiver retracts any authority previously provided to
sell the storage unit or any other asset owned by SSC
02, LLC. Further, we need a full accounting of all items in
the storage facility as well as the assets held by SSC 02,
LLC, including membership interests in any ACF
owned entity as reflected by the attached check.
See 01/12/19 Dragul and Fox Emails, attached as Exhibit 43 (emphasis added). A
copy of the check referred to in the above-referenced email (attached as Exhibit 44)
specifically identifies SSC 02’s interests in Kenwood, Fenton, and College
Marketplace, the very interests Fox paid $60,000 for three-and-a-half months later.
282. Within minutes of Dragul learning the Receiver was onto SSC 02,
Dragul forwarded the Receiver’s April 9 email to Fox with the following note: “Alan,
See below. Can we discuss.” See Email Forwarding Turnover Conferral, attached
as Exhibit 45 (emphasis added). Fox had actual knowledge on April 9th that the
Receiver was seeking turnover of SSC 02’s interests in Kenwood, Fenton, and College
78
Marketplace. Nevertheless, without the Receiver’s knowledge or consent, and without
Court approval, Fox paid Dragul $60,000 for these interests in July 2019.
283. In another transaction taking place in November 2018 and continuing
through February 2019, designed to conceal payments to Dragul in violation of the
Receivership Order, Fox surreptitiously purchased Dragul’s interests in yet another
Fox-owned SPE that was property of the Estate.
284. In 2015, Dragul acquired a 7.317% membership interest in the Shoppes
at Bedford 15A, LLC (one of the Fox Entities), an interest purportedly then worth
$654,871.50. On November 1, 2015, Dragul “gifted” 50% of his Bedford interest to his
friend, lender, and frequent investor Marty Rosenbaum.
285. In November 2018, months after the Receiver was appointed,
Rosenbaum agreed to a proposed transaction in which Dragul would secure a
$200,000 loan from Fox with both his and Rosenbaum’s 3.6585% Bedford interests.
But that transaction apparently did not occur. Instead, Rosenbaum sold his Bedford
interest to Fox for $100,000, which Rosenbaum then funneled to Dragul, and at the
same time Fox paid Dragul an additional $25,000.
286. On November 9, 2018, Fox wired $25,000 to Dragul’s wife Shelly “as a
deposit re Bedford LLC Member Interest” with the intention of concealing the funds
concealed from the Receiver.
287. On November 15, 2018, Rosenbaum transmitted an executed $100,000
“promissory note” and membership interest purchase agreement and confirmed in
79
the email that “Once I receive the wire . . . I will turn around and wire to
Shelly’s account.”
288. On November 16, 2019, Shelly Dragul received both the $25,000 wire
from Fox in her personal Chase bank account, and the $100,000 wire from
Rosenbaum.
289. Without disclosing the completed November 2018 Rosenbaum
transaction to the Receiver, in February 2019, Dragul asked the Receiver to consent
to Dragul selling his 3.6585% Bedford interest to Fox for $20,000, one-fifth what Fox
paid Rosenbaum a few months before. GDA’s February 13, 2019, email stated “to get
this [Dragul’s Bedford interest] out of the receivership estate, Alan is willing to
purchase Gary’s beneficial interest for $20,000, payable immediately to the estate.”
Fox confirmed the offer with the Receiver on March 12, 2019.
290. In March 2019, the Receiver asked Fox for various documents, including
tax returns, necessary to value the Estate’s interest in Bedford, and assess the
potential tax implications of the proposed purchase to determine whether the
transaction was in the Estate’s best interest.
291. The Receiver also had periodic communications with Fox’s CFO on
various issues. Fox had actual knowledge that Dragul’s interest in Bedford was
property of the Estate and understood that the Receiver needed to approve its sale.
292. Less than one hour after Fox and Dragul once again asked the Receiver
to approve Fox’s purchase of Dragul’s Bedford interest, Dragul forwarded Fox a copy
80
of the Receiver’s April 9, 2019, email demanding that SSC 02’s interests in Kenwood,
Fenton, and College Marketplace be turned over to the Estate. Just like Bedford, Fox
knew he could not lawfully purchase the SSC 02 interest without the Receiver’s
consent and Court approval, but he went ahead and did so anyway.
G. Payment of Unauthorized Commissions
293. According to Dragul’s records, from 2003 through August 2018, Dragul,
in active concert with the other Defendants, stole over $20.2 million from investors
which was used, inter alia, to pay almost $9 million in personal gambling debts, to
impermissibly pay millions to Dragul’s family members and the Non-Dragul
Defendants, and to fund the extravagant lifestyles of Dragul, his family, coworkers
and those Dragul designated as “friends of the house.”
294. Various SPEs were used to fraudulently transfer funds to Defendants,
including, but not limited to, AP Plaza 07 A, LLC, Fort Collins WF 02, LLC, GDA
Clearwater 15, LLC, Crosspointe 08 A, LLC, GDA Hickory 17, LLC, GDA Housing,
LLC, GDA PS Member, LLC, GDA Windsor Member, LLC, Grandview 06 A, LLC,
HC Shoppes 18 A, LLC, Market at Southpark 09, LLC, Plainfield 09 A, LLC, Plaza
Mall North 08 A Junior, LLC, Plaza Mall North 08 B, LLC, Prospect Square 07 A,
LLC, Rose, LLC, Southlake 07 A, LLC SSC 02, LLC, Standley Lake 07 A, LLC,
Syracuse Property 06 A, LLC, Summit 06, A, LLC, Village Crossroads 09, LLC,
Walden 08 A, LLC, West Creek 06 A, LLC, Yale & Monaco 02, LLC and YM Retail 07
81
A, LLC. These SPEs were funded with money Defendants obtained by defrauding
investors.
295. The Receiver’s forensic analysis has been hampered by Dragul’s
concealment of records, his use of SPEs to channel funds under the guise of purported
“commissions” and other fees to the Defendants, and the vast commingling among
the various Dragul accounts. The Receiver reserves the right to recover additional
commissions that may be uncovered in discovery and proven at trial.
296. All of the commissions set forth below represent the transfer of funds
Defendants obtained by fraud from investors who invested money by purchasing
ownership interests in SPEs. These investment vehicles were used to fraudulently
transfer funds masked as illegal and undisclosed “commissions” to Dragul, the Kahn
Defendants, Markusch, and the Fox and Hershey Defendants.
297. Dragul and the Non-Dragul Defendants paid each other millions of
dollars in unauthorized, undisclosed and illegal commissions from the escrow of real
estate closings and from the SPE accounts as follows (collectively, the
“Commissions”):
Defendant Commissions from
Escrow
Commissions from
GDA Entities
Total Commissions
Received
Gary Dragul $18,822,421.55 $325,625.55 $19,148,047.10
Markusch Defendants $212,796.67 $97,300.00 $310,196.67
Kahn Defendants $661,026.87 $1,040,415.05 $1,701,441.92
Fox Defendants $9,714,804.81 $485,500.00 $10,200,304.81
Hershey Defendants $578,500.00 $2,597,155.54 $3,175,655.54
See Compl. Exs. 3, 4, 5, 6 (as amended), and 7.
82
i. The Dragul and Fox Commissions
298. As detailed and set forth in the chart above, Dragul took millions of
dollars in unauthorized, undisclosed, and illegal commissions from the closing and
refinance of numerous properties (the “Dragul Commissions”). See Compl. Ex. 3.
Exhibit 3, which is incorporated herein by reference, sets forth the date, payee,
property and amount of each Dragul Commission.
299. From 2002 to 2018, Dragul took approximately $18.6 million from the
escrow of real estate closings (both purchases and sales) of various SPE associated
properties both in GDA and ACF’s portfolios, to which neither he nor any GDA Entity
was entitled. See Compl. Ex. 3.
300. Not only did Dragul fail to disclose these unlawful and unauthorized
commissions to investors in the Solicitation Materials, he also failed to disclose, and
actually concealed them in the information provided to investors regarding the sale
of at least one SPE associated property in which they had invested – PMG.
301. Dragul likewise paid the Fox Defendants over $9.7 million in
“commissions” at the closing on various Dragul properties, and another $485,500 for
purported commissions from the GDA Entities’ bank accounts (the “Fox
Commissions”). See Amd. Ex. 6. Amended Exhibit 6, which is incorporated herein
by reference, sets forth the date, payee, property and amount of each Fox
Commission.
83
302. The Dragul and Fox Commissions were illegal because neither Fox nor
Dragul was a licensed real estate agent entitled to receive them.
ii. The Markusch Commissions
303. For her role as CFO and controller of GDA, Markusch received a sizeable
salary, not including bonuses and benefits.
304. In addition to her sizeable salary and benefits, the Markush Defendants
also received undisclosed and illegal commissions from the closing on both
commercial and residential properties through Juniper and Olson RES, which is the
sole member (the “Markusch Commissions”). See Compl. Ex. 4. Exhibit 4, which is
incorporated herein by reference, sets forth the date, property and amount of each
Markusch Commission.
305. From 2014 through 2018, the Markusch Defendants received
approximately $284,796.67 in undisclosed and unlawful commissions from GDA and
the SPE entities. See Ex. 4.
306. In at least four instances, the Markusch Defendants’ commissions were
taken from the closing of various properties in which defrauded investors made
investments in reliance on the Solicitation Materials – Rose, LLC, Upper High Street
15, LLC, AP Plaza 07 A, LLC and Summit 06 A, LLC. See Ex. 4.
307. Like the Dragul and Fox Commissions, the Markusch Commissions
were never disclosed to prospective investors.
84
308. The Markusch Defendants were not licensed or registered brokers with
FINRA, the State of Colorado or the SEC, nor associated with a FINRA or
Commission-registered broker-dealer at any time relevant herein.
309. Likewise, upon information and belief the Markusch Defendants are not
and have never been a licensed real estate agents in Colorado or any state entitling
her to receive commissions from the closing of real estate transactions.
iii. The Hershey Commissions
310. Rather than taking “commissions” from the property closings, the
Hershey Defendants received commissions from Dragul separately, all based on an
agreed percentage of the funds Dragul received from investors solicited by Hershey.
311. As set forth in the table above, from 2001 to 2014 the Hershey
Defendants received approximately $2,891,155.54 in commissions for funds solicited
by Hershey from investors. See Compl. Ex. 7. Exhibit 7, which is incorporated herein
by reference, sets forth the date, payee, property, and amount of each Hershey
Commission.
312. In addition to these commissions, Dragul paid the Hershey Defendants
$194,000 in “commissions” from the sales of properties owned by AP Plaza 07 A, LLC
and Grandview 06 A, LLC (collectively referred to as the “Hershey Commissions”).
See Compl. Ex. 7.
85
313. The Hershey Defendants were not licensed or registered brokers with
FINRA, the State of Colorado or the SEC, nor associated with a FINRA or
Commission-registered broker-dealer at any time relevant herein.
V. FIRST CLAIM FOR RELIEF:
Violations of the Colorado Securities Act
Colo. Rev. Stat. §§ 11-51-501 and 11-51-604(1), (2)(A), (3), and (5)
314. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
315. The Receiver has standing to prosecute this claim both on behalf of the
SPEs and the GDA Entity investors, all of whom are creditors of the Receivership
Estate. See Compl. Ex. 1, at ¶ 13(s).
A. Securities Registration Violations, C.R.S. §§ 11-51-604(1) and 11-51-301
(Against Dragul and the Fox Defendants)
316. As set forth in the preceding paragraphs of this Amended Complaint,
Dragul and the Fox Defendants sold securities in this State in violation of C.R.S. §
11-51-301, because between 2003 through August 2018, Dragul and Fox sold
securities that were not registered under Article 51 of the Colorado Revised Statutes.
C.R.S. § 11-51-604(1).
317. Specifically, Fox’s solicitation of and sale to the Southpark Investors
from 2009-2010 and to the FC Investors from 2008 through 2019, of membership
interests in the specific SPE whose sole asset was real property and whose sole
purpose was to own and manage the property, required registration of the securities
being sold and Fox failed to do so.
86
318. Likewise, Dragul’s solicitation and sale to the GDA Entity Investors
from 2003 through August 2018 of both membership interests in the GDA Entities
and of promissory notes (the “Investment Contracts”) required that he register the
securities being sold, but he failed to do so.
319. Neither the Receiver nor the GDA Entity Investors could have
discovered the above-detailed conduct and transactions prior to August 30, 2018, at
the earliest, through reasonable diligence because (1) the Receiver did not have access
to the GDA books and records before that date as Dragul and GDA were not yet
subject to a receivership, (b) Dragul and the Fox Defendants refused to produce the
SPE books to the GDA Entity Investors on numerous occasions; and (c) the manner
in which Dragul conducted GDA’s business was designed to conceal or hide the facts
of his fraud, theft, and material misrepresentations and omissions. Moreover, upon
information and belief, Dragul destroyed or deleted data, information, documents,
and other electronically stored information prior to the Receiver’s appointment.
320. The Receiver is therefore entitled to recover damages, interest, costs,
and attorneys’ fees pursuant to C.R.S. § 11-51-604(1).
B. Licensing and Notice Filing Violations, C.R.S. §§ 11-51-604(2)(a) and
11-51-401 (Against Dragul and the Fox and Hershey Defendants)
321. Dragul and the Hershey Defendants acted as “broker-dealers” as defined
in C.R.S. § 11-51-201((2) in the following respects:
a. Dragul and the Hershey Defendants’ solicited and sold of membership
interests in Fox-formed SPEs that owned and operated property
87
including but not limited to Market at Southpark, Loggins Corners,
Tower Plaza, Highlands Ranch, Southwest Commons, Meadows
Shopping Center, Laveen Ranch and Trophy Club to the GDA Entity
Investors from 2009 through 2018 (See ¶¶ 5, 41-43, 67, 78, 83, 87-95,
101-102, 145, 148, 145, and 173-175, supra);
b. Dragul and the Hershey Defendants’ solicited and sold promissory notes
(Investment Contracts) to the Note Investors from 2008 through August
2013 (See ¶¶ 5, 27-28, 64, supra).
322. Neither Dragul nor the Hershey Defendants were licensed or exempt
from licensure, as either “broker-dealers” or “sales representatives,” nor were they
registered in any capacity with the Commissioner as required by C.R.S. §§ 11-51-401
and 402 in violation of C.R.S. § 11-51-401(1). See ¶¶ 5, 27-28, and 64, supra.
323. Moreover, the Fox Defendants are considered “issuers” under C.R.S. §
11-51-201(10) because they issued securities in the form of SPE membership or joint
venture interests in Market at Southpark 09, LLC, Tower Plaza 12, LLC, Loggins
Corners 12, LLC, HR 05 A, LLC, Meadows Shopping Center 05 A, LLC, Southwest
Commons 05, A, LLC, Laveen Ranch 12, LLC, and Trophy Club 12, LLC to the GDA
Entity Investors in this State. See ¶¶ 6, 55, 78, 83, 90-142, and 163 – 214, supra.
324. The Fox Defendants employed or otherwise engaged Dragul, an
unlicensed sales agent to act as sales representative in Colorado in violation of C.R.S.
§ 11-51-604(2). See id.
88
325. Neither the Receiver nor the GDA Entity Investors could have
discovered the above-detailed conduct and transactions prior to August 30, 2018, at
the earliest, through reasonable diligence because (a) the Receiver did not have access
to the GDA books and records before that date as Dragul and GDA were not yet
subject to a receivership, (b) Dragul and the Fox Defendants refused to produce the
SPE books to the GDA Entity Investors on numerous occasions; and (c) the manner
in which Dragul conducted GDA’s business was designed to conceal or hide the facts
of his fraud, theft, and material misrepresentations and omissions. Moreover, upon
information and belief, Dragul destroyed or deleted data, information, documents,
and other electronically stored information prior to the Receiver’s appointment.
326. As such, the Receiver, on behalf of the defrauded GDA Entity Investors
and the Estate, is entitled to an award of damages, interest, costs, and attorneys’ fees
pursuant to C.R.S. § 11-51-604(2).
C. Securities Fraud in Violation of C.R.S. §§ 11-51-604(3) - (4) and 11-51-
501(1)(a)-(c) (against Dragul and the Fox Defendants).
327. Dragul and the Fox Defendants, in connection with the offer, sale, or
purchase of securities, directly or indirectly, operated and employed the Sham
Business Scheme or artifice to defraud the Southpark Investors, the PMG Investors,
the Prospect Investors, the FC Investors, and the other GDA Entity Investors from
2003 through August 2018 (the “Scheme”). C.R.S. § 11-51-501(a). See
328. The Scheme effectively defrauded GDA Entity investors and prospective
investors by making false and misleading material misrepresentations to induce the
89
purchase of purported ownership interests in SPEs or joint ventures established by
Dragul and the Fox Defendants, which constitute securities under C.R.S. § 11-51-
201(17). The GDA Entity investors relied on the representations made both in the
Solicitation Materials and directly by Dragul and the Fox and Hershey Defendants
in soliciting their investments. The funds ultimately invested by the GDA Entity
investors in reliance on Dragul and the Fox and Hershey Defendants’ representations
were either transferred into Dragul’s personal accounts, used to pay undisclosed and
illegal commissions, and/or to pay off old debts, without the authority or knowledge
of those investors. See ¶¶ 1-8, 34-44, 53-78, 83-89, 90-142, 143-163, 163-124, and 216-
258 supra.
329. Dragul and the Hershey and Fox Defendants perpetuated this fraud by
soliciting investors to purchase membership interests in various SPEs for the stated
purpose of purchasing and operating commercial properties. However, Dragul and
the Fox and Hershey Defendants did not invest funds where represented, but instead
used those funds to pay down other debt and for these Defendants’ own personal
benefit. See id.
330. The above-detailed Scheme was carried out by Dragul and the Fox
Defendants from approximately 2003 through August 2018.
331. In connection with the offer, purchase, and sale of securities, including
North 08, GDA Market at Southpark, LLC, Fort Collins WF 02, LLC, PS 16, LLC and
others, Dragul, and the Fox Defendants, either directly or indirectly, made untrue
90
statements of material fact or failed to disclose to investors material facts which were
necessary to make the statements made to investors, under the circumstances in
which they were made, not misleading in violation of C.R.S. § 11-51-501(b) and (c).
The omitted and untrue statements of material fact that investors did not know and
could not have known included, but were not limited to the following:
a. Dragul failed to disclose to the GDA Entity Investors that he would
sell/assign over 194% of the total membership interests in Plainfield 09
A, LLC and the Plainfield Commons Shopping Center. See Ex. 22, at 3;
and ¶¶ 60-62 supra.
b. Dragul failed to disclose the actual risk associated with the investments
in the GDA Entities and in the Fox-owned SPEs. See Ex. 22, at 3; see
also ¶¶78, 83-89, 90-142, 143-163, 163-214, and 216-258, supra.
c. Dragul and the Fox Defendants failed to disclose to the GDA Entity
Investors from 2008 through August 2018 the actual financial condition
and substantial debt of GDA and Dragul which Fox had actual
knowledge by virtue of his demand for periodic budgets and financial
information (both personal and SPE) from Dragul. See Ex. 22, at 3; see
also ¶¶78, 83-89, 90-142, 143-163, 163-214, and 216-258, supra.
d. Dragul and the Fox Defendants failed to disclose to the FC Investors
that they would sell membership interests to family members and
insiders at reduced costs and gift membership interests to Dragul
91
insiders, effectively diluting FC Investor membership interests. See ¶¶
163-214. supra
e. Dragul and the Fox Defendants made untrue statements that that the
properties constituting the sole asset of the SPEs in which the investors
purchased interests, would be operated with profits derived therefrom
being distributed to investors on a monthly basis, when in fact, the GDA
Entity Investors distributions were not based on actual performance of
the investment, but rather Dragul and the Fox Defendants paid varying
amounts of distributions not from the profits, but from extensively
comingled funds from other investors, other loans and/or the operations
of GDA and ACF, respectively. See Second Indictment; and ¶¶ 59, 71-
77, 96, 124, 130, 194, and 198, supra
f. Dragul and the Fox Defendants made untrue statements that the GDA
Entity Investors’ investments and the amount of operating reserves
represented in the financial projections included in the Solicitation
Materials for Market at Southpark, Loggins Corners, Trophy Club,
PMG, Shoppes at the Meadows, Southwest Commons, Laveen Ranch,
and Trophy Club were not actually held in the specific Fox SPE or GDA
Entity associated bank accounts, but rather were comingled with the
funds from all operations of GDA and ACF. See Compl. Exs. 8, 12, 16,
92
20 (attached to Original Complaint), and Exs. 24, 29, 30, 31, 35; ¶¶ 78,
83-89, 90-142, 143-163, and 163-214, supra
g. Dragul and the Fox Defendants made untrue statements that the
proceeds from any sale would be distributed to the GDA Entity Investors
in accordance with their pro rata share membership interests, when in
truth, they failed to disclose to individual investors the sale of various
properties before they were sold including the properties associated
Highlands Ranch and Market at Southpark in 2011, Loggins Corners in
2018, and Laveen Ranch in 2019, and instead, forced the investors to
roll-over their investments into new properties, and in one case, failed
to disclose the sale of the PMG property in April 2017 to the PMG
Investors and failed to return the PMG Investors’ capital consistent with
the governing documents. See ¶¶ 53-56, 104-113, 118 -140159-161, 180-
183, 187-200, 204-211, supra
h. Dragul’s and the Fox Defendants made untrue statements that the
funds invested by the GDA Entity Investors in the Market at Southpark
from 2009-2010, PMG from 2008-2016, FC WF 02 from 2008-2012,
Prospect Square 2007-2016, and other SPE-owned properties would not
be comingled with the funds of other investors in unrelated ventures
and/or with Dragul’s own personal funds, when in truth they were
commingled and treated as fungible rather than being used for the
93
purpose that Dragul and Fox represented they would be used in the
Solicitation Materials as set forth in Exhibits, 8, 12, 16, 20 (attached
to Original Complaint), and Exhibits 24, 29, 30, 31, 32, 36, 39, and
(attached hereto), and in paragraphs ¶¶ 78, 83-89, 90-142, 143-163, and
163-214, above.
i. The Fox Defendants made untrue statements that the GDA Entity
Investor funds invested the Market at Southpark from 2009-2020, FC
WF 02 from 2008-2020, and other SPE-owned properties would not be
comingled with the funds of other investors in unrelated ACF ventures
and/or with the funds of other investors in unrelated ventures and/or
with Dragul’s own personal funds, when in truth they were commingled
and treated as fungible rather than being used for the purpose that
Dragul and Fox represented they would be used in the Solicitation
Materials as set forth in Exhibits 8, 12, 16, 20 (attached to Original
Complaint), and Exhibits 29, 30, 36, and 39 (attached hereto), and in
paragraphs 78, 90-142, and 163-214, above;
j. Dragul and the Fox Defendants failed to disclose that they offered and
sold interests in the SPEs which owned the property at a reduced rate
or in some instances, for no consideration, thereby diluting the GDA
Entity Investor’s investments as set forth in paragraphs 63, 103, 125,
128, 156, and 179, above.
94
k. Dragul and the Fox Defendants failed to disclose to the Southpark
Investors, the FC Investors, the PMG Investors, the Prospect Investors,
and other GDA Entity Investors that the investment funds contributed
in reliance on the Solicitation Materials prepared and distributed by
Dragul and the Fox and Hershey Defendants between 2009 through
2018 would be used to improperly pay commissions to these Defendants
and other Non-Dragul Defendants in the amounts and on the dates set
forth in Compl. Ex. 3, 4, 5, 6 (as amended), and 7. See also ¶¶ 5-7, 22,
27, 42, 62, 82, 87, 89, 98-100, 111, 113, 121-123, 127-129, 131-137, 143-
145, 168, 170-171, 173-175, 180, 191-193, 201-203, 211-213 ,293-313;
l. Dragul and the Fox Defendants made untrue statements from 2008
through 2018 to the Southpark Investors, the FC Investors, the PMG
Investors, the Prospect Investors, and other GDA Entity Investors
concerning the purchase price of various properties, their closing costs,
and the financial projections in the Solicitation Materials for the
investments, including but not limited to those detailed in paragraphs
62, 83-89, 90-100, 104, 121-132, 143-150, 155-156, 172-175, 190-211,
219-221, 251-253, 299-300, supra, on the dates stated therein;
m. Dragul and the Fox Defendants made untrue statements in the Loggins
Corners, Tower Plaza, Trophy Club, and Laveen Ranch Solicitation
Materials following the unauthorized sale of the real estate owned by
95
the SPEs including but not limited to those set forth and described in
detail in paragraphs 53-56, 104-113, 118 -140159-161, 180-183, 187-200,
and 204-211, above, in order to induce their consent to sell the sole asset
of the SPE in which they invested and to induce roll-over investments
into the replacement properties;
n. The Fox Defendants’ failed to disclose that Fox would misappropriate a
substantial amount of property equity from escrow of Laveen Ranch and
Loggins Corners when he refinanced those properties in 2016, which
was money that he represented would be, and which should have been,
paid to the Southpark Investors. See ¶¶ 133-134 and 201-203 supra.
o. Dragul and the Fox Defendants’ made untrue statements to the
Southpark Investors, FC Investors, Prospect Investors, and other GDA
Entity Investors between 2009 through 2018 that that they could not
cash out their investments including but not limited to those set forth
in paragraphs 60-62, 177-178, 183-189, and 200, above, when the
respective Solicitation Materials, Membership Interest Purchase
Agreements, or the governing entity documents did not require the
investments to be held for any specific number of years. See id.
p. Dragul and the Fox Defendants failed to disclose that they would engage
in a course of business which diluted the value of membership interests
including Dragul’s gifting of membership interests in FC WF 02 in or
96
about 2008 to insiders and Fox’s sale of Market at Southpark interests
at varying prices to members of his family in 2009. See Second
Indictment; and ¶¶ 63, 103, 125, 128, 156, and 179, supra
332. The Scheme was also employed through Dragul’s offering of promissory
notes (Investment Contracts) from 2007 through 2013 pursuant to which he raised
$6.4 million from more than thirty-one individual investors all of whom are identified
in the First Indictment (the “Note Investors”). See First Indictment; and ¶¶ 57, 63-
65, and 155-156, supra.
333. The promissory notes issued by Dragul constitute securities pursuant to
C.R.S. § 11-51-201(17).
334. In soliciting the promissory notes (Investment Contracts), Dragul made
material, untrue statements and omissions of material facts, including but not
limited to:
a. Failing to disclose the actual risk associated with the investments;
b. Failing to disclose to the Note Investors that GDA had negative equity
of over $8.5 million, including over $4 million in unpaid, overdue
promissory notes issued in 2007 and 2008;
c. Failing to disclose to the Note Investors that Dragul and GDA were
named as defendants in numerous civil lawsuits brought by Note
Investors for failing to timely repay promissory notes issued prior to
2013.
97
d. Failing to disclose to the Note Investors that Dragul was using the funds
from the notes to pay personal expenses, including but not limited to
repayment of personal loans to Fox, millions of dollars in payments to
Las Vegas Casinos, maintenance and upkeep costs for the Airplane
owned by Dragul and Fox, renovations on his former home, payments to
credit card companies, and liquor stores that he and his wife purportedly
owned; and
e. Failing to disclose that he would selectively repay the Note Investors -
paying insiders and “friends of the house” or rolling their unpaid notes
(Investment Contracts) into an SPE investment while defaulting on all
others.
See Ex. 22.
335. Dragul and Fox recklessly, knowingly, and with the intent to defraud
employed the Scheme from 2003 through August 2018.
336. Neither the Receiver nor the GDA Entity Investors could have
discovered the above-detailed material misrepresentations and omissions made to the
GDA Entity Investors prior to August 30, 2018, at the earliest, through reasonable
diligence because (a) the Receiver did not have access to the GDA books and records
before that date as Dragul and GDA were not yet subject to a receivership, (b) Dragul
and the Fox Defendants refused to produce the SPE books to the GDA Entity
Investors on numerous occasions; and (c) the manner in which Dragul conducted
98
GDA’s business was designed to conceal or hide the facts of his fraud, theft, and
material misrepresentations and omissions. Moreover, upon information and belief,
Dragul destroyed or deleted data, information, documents, and other electronically
stored information prior to the Receiver’s appointment.
337. The GDA Entity Investors reasonably relied on the above-detailed
material misrepresentations and omissions made by Dragul and the Fox Defendants,
who knew or should have known of their reliance, to their detriment.
338. As a direct and proximate result of Dragul and the Fox Defendants’
Scheme from 2003 through August 2018 in violation of C.R.S. §§ 11-51-501 and 11-
51-604(3) and (4), the GDA Entity Investors and the Estate, on whose behalf the
Receiver asserts these claims, have been damaged in an amount to be shown at trial.
D. Control Person Liability, C.R.S. § 11-51-604(5)(a) and (b) (against
Dragul and Fox)
339. In carrying out the Scheme as set forth herein, Dragul acted as a direct
control person of the Non-Dragul Defendants and Fox as a control person of Dragul
within the meaning to C.R.S. § 11-51-604(5)(a).
340. At all times relevant herein, both Fox and Dragul are considered issuers
as defined in C.R.S. § 11-51-201(10).
341. By virtue of his ownership of, high level position in, and participation in
and/or awareness of the operations of GDA RES, GDA REM, and the GDA Entities
on whose behalf Hershey acted as a contract consultant in soliciting investments,
Markusch who served as CFO of GDA RES, and Kahn who served as outside general
99
Counsel for GDA RES, GDA REM and the GDA Entities, Dragul had the power to
influence the control and did influence the control, directly or indirectly, the decision-
making of the Hershey and Kahn Defendants and Markusch including the
distribution and making of false and misleading statements and in the material
omissions contained in the Solicitation Materials and in untrue statements.
342. Likewise, by virtue of his role as Dragul’s mentor, business partner-
lender, use of the GDA employees for ACF operations, and his, participation in and/or
awareness of the daily operations of GDA RES, GDA REM, and the GDA Entities,
Fox had the power to influence and control and did influence and control, directly or
indirectly, over the decision-making of Dragul, including the distribution and making
of false and misleading statements to prospective investors and in the material
omissions contained in the Solicitation Materials.
343. Both Dragul and Fox had direct and supervisory involvement in the day-
to-day operations of GDA RES, GDA REM and the GDA Entities, and therefore, are
presumed to have had the power to control or influence the particular transactions
giving rise to the securities violations as alleged herein and exercised same.
344. As such, Fox and Dragul are jointly and severally liable pursuant to
C.R.S. § 11-51-604(5)(a) and (b).
100
E. Substantial Assistance Claims, C.R.S. § 11-51-604(5)(c) (Against the
Kahn Defendants, the Fox Defendants, the Hershey Defendants,
Markusch)
345. As alleged in the preceding paragraphs, Dragul and the Fox Defendants
recklessly, knowingly, and/or with the intent to defraud the GDA Entity Investors
and the Note Investors, sold securities – i.e., the membership interests in Dragul and
Fox-formed SPEs or joint ventures and promissory notes, in violation of C.R.S. § 11-
51-501. See § V.C, supra.
346. Dragul and the Fox Defendants offered and sold securities by means of
untrue statements of material fact or omissions to state material facts necessary in
order to make statements, in light of the circumstances under which they were made,
not misleading (the Investors not knowing of the untruths or omissions). Id.
347. Markusch, and the Kahn and Hershey Defendants knew or had reason
to know that Dragul and the Fox Defendants, engaged in conduct which constituted
violations of C.R.S. § 11-51-604(3) and (4) through the operation of the Scheme,
pursuant to which all Defendants received substantial unauthorized and undisclosed
commissions both from escrow of the properties owned by the various SPEs, and from
their respective bank accounts in which investor funds and reserves were to be held
and maintained for the benefit of the GDA Entity Investors.
348. The Hershey Defendants’ provided substantial assistant to the illegal
conduct of Dragul pursuant to C.R.S. § 11-51-604(3) and (4) through:
101
a. The solicitation of investors in the GDA Entities since approximately
2001;
b. Their receipt of unauthorized and undisclosed commissions in the
amount of $3,175,655.54 for each investment successfully solicited and
promissory note sold on Dragul’s behalf from 2001-2013; and
c. Other acts which may be shown at trial.
349. The Fox Defendants’ provided substantial assistance to the illegal
conduct of Dragul pursuant to C.R.S. § 11-51-604(3) and (4) through:
a. The sharing in misappropriated investor funds from the purchase,
refinance, and sale of properties in which the GDA Entity Investors were
members;
b. Making material misstatements to the GDA Entity Investors to induce
their investment in both Fox and Dragul formed and controlled SPEs;
c. Their receipt of unauthorized and undisclosed commissions in the
amount of $10,200,304.81 from both the escrow of properties purchased
and sold by the Fox SPEs and the GDA Entities from 2002-2018; and
d. Other acts which may be shown at trial.
350. The Kahn Defendants provided substantial assistance to the illegal
conduct of Dragul and the Fox Defendants pursuant to C.R.S. § 11-51-604(3) and (4)
by:
102
a. Providing counsel and advice to Dragul with respect to the unauthorized
and undisclosed sale of PMG and concealment from the PMG Investors
in or about 2017 and 2018;
b. Aiding and facilitating Dragul’s and the Fox Defendants’ violations of
the Receivership Order to transfer and sell Estate Assets without the
Receiver’s knowledge and consent from August 2018 through the
present;
c. Their receipt of $1,701,441.92 in unauthorized and undisclosed
commissions from both the escrow of properties purchased and sold by
the Fox SPEs and the GDA Entities from 2012-2018; and
d. Other acts which may be shown at trial.
351. Markusch provided substantial assistance to the illegal conduct of
Dragul pursuant to C.R.S. § 11-51-604(3) and (4) through:
a. Her actions undertaken in her capacity as CFO of GDA, specifically the
extensive comingling of funds that were required to be held in particular
GDA Entity accounts in order to perpetrate Dragul’s Ponzi Scheme and
prevent its detection;
b. Her receipt of $310,196.67 in unauthorized and undisclosed commissions
from both the escrow of properties purchased and sold by the Fox SPEs
and the GDA Entities from 2014-2018; and
c. Other acts which may be shown at trial.
103
352. The acts, actions, practices and omissions of all Defendants as set forth
in this claim for relief substantially harmed the GDA Entity Investors and the Estate.
353. Neither the Receiver nor the GDA Entity Investors could have
discovered these material misstatements and omissions made in connection with the
sale of securities prior to August 30, 2018, at the earliest, through reasonable
diligence because (a) the Receiver did not have access to the GDA books and records
before that date as Dragul and GDA were not yet subject to a receivership, (b) Dragul
and the Fox Defendants refused to produce the SPE books to the GDA Entity
Investors on numerous occasions; and (c) the manner in which Dragul conducted
GDA’s business was designed to conceal or hide the facts of his fraud, theft, and
material misrepresentations and omissions. Moreover, upon information and belief,
Dragul destroyed or deleted data, information, documents, and other electronically
stored information prior to the Receiver’s appointment.
354. Accordingly, Markusch, and the Kahn and Hershey Defendants are
therefore jointly and severally liable to the same extent as Dragul and the Fox
Defendants to the Receiver, who pursues these claims on behalf of and for the GDA
Entity Investors and the Estate, pursuant to C.R.S. § 11-51-604(5)(c).
VI. SECOND CLAIM FOR RELIEF:
Negligence
(against Dragul and the Fox and Hershey Defendants)
355. The Receiver incorporates the previous allegations of the Complaint as
if fully set forth herein.
104
356. The Receiver has standing to prosecute these claims both on behalf of
the SPEs and on behalf of the GDA Entity investors, all of whom are creditors of the
Receivership Estate. See Compl. Ex. 1, at ¶ 13(s).
357. Dragul, the Fox and the Hershey Defendants each owed a duty of care
to investors and prospective investors.
358. These defendants failed to exercise reasonable care or competence in
preparing and distributing Solicitation Materials to prospective GDA Entity
investors and in making representations to investors.
359. These defendants’ negligence was a cause of Plaintiff’s injuries and
injuries to investors.
VII. THIRD CLAIM FOR RELIEF:
Negligent Misrepresentation
(Against Dragul and the Fox and Hershey Defendants)
360. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
361. The Receiver has standing to prosecute these claims on behalf of the
GDA Entity investors, the latter of which are creditors of the Receivership Estate.
See Compl. Ex. 1, at ¶ 13(s).
362. Through Dragul’s fraudulent Scheme, Dragul and the Fox and Hershey
Defendants negligently induced the GDA Entity investors to invest and/or to continue
to invest (through roll-overs of prior investment) significant sums of money in various
105
SPE Entities by making misrepresentations of material fact concerning the
investments.
363. More specifically, Dragul, and the Fox and Hershey Defendants made
false and misleading material misrepresentations concerning the source and use of
funds to induce investors and prospective investors to purchase purported ownership
interests in SPEs, including but not limited to those set forth in ¶¶ 53-56, 59, 62, 71-
77, 78, 83-89, 90-100, 104, 121-132, 143-150, 155-156, 172-175, 190-211, 219-221, 251-
253, 299-300, above.
364. These Defendants gave such information to investors in the course of
their business and in connection with transactions in which they had a financial
interest.
365. These Defendants gave the false and misleading information to
investors for the investors’ use in business transactions, and these Defendants were
negligent in obtaining or communicating the information.
366. The GDA Entity investors relied on the representations made both in
the Solicitation Materials and directly by Dragul and the Fox and Hershey
Defendants in soliciting their investments. The funds ultimately invested by the GDA
Entity investors in reliance on these Defendants’ representations were either
transferred into Dragul’s personal accounts, used to pay undisclosed and illegal
commissions, and/or to pay off old debts, without the authority or knowledge of those
investors. See Compl. Exs. 3, 4, 5, 6 (as amended), and 7; see also ¶¶ 5-7, 22, 27,
106
42, 59, 62, 71-77, 82, 87, 89-142, 143-149, 155-156, 168, 170-171, 173-175, 180, 191-
194, 198, 201-203, 211-213, and 293-313, supra.
367. The negligent misrepresentations made by Dragul and the Fox and
Hershey Defendants were material and were made without reasonable care for the
guidance of others, namely the GDA Entity investors.
368. Dragul and the Fox and Hershey Defendants provided materially
misleading information or omitted disclosure of material information, intending or
knowing GDA investors would reasonably rely upon those negligent
misrepresentations in investing in the SPE entities. See ¶¶ 5-7, 22, 27, 42, 53-56, 59,
62, 71- 77, 78, 83-142, 143-150, 155-156, 168, 170-171, 172-178, 181-211, 190-211,
219-221, 251-253, 299-300, supra.
369. GDA Entity investors reasonably and justifiably relied upon the
negligent misrepresentations of Dragul, and the Hershey and Fox Defendants in
making their decision to invest in the GDA Entities.
370. As a direct and proximate cause of their reliance on Dragul and the Fox
and Hershey Defendants’ negligent misrepresentations, the GDA Entity investors
sustained substantial damages and losses.
VIII. FOURTH CLAIM FOR RELIEF:
Civil Theft -- Colo. Rev. Stat. § 18-4-401
(Against All Defendants)
371. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
107
372. The Receiver has standing to prosecute these claims on behalf of the
Estate, the SPEs, and on behalf of the GDA Entity Investors, the latter of which are
creditors of the Receivership Estate. See Compl. Ex. 1, at ¶ 13(s).
373. Defendants knowingly exercised control over GDA Entity investors’
funds.
374. Without investors’ knowledge or authorization, Defendants exploited
their control over those funds by causing them to be used for Defendants’ personal
benefit. See ¶¶ 1-4, 1-8, 34-44, 47-49, 50-78, 87, 89, 96, 124, 130, 194, 198, 220, and
293-313, supra.
375. Defendants intended to permanently deprive investors of their
investments.
376. GDA Entity investors were in fact permanently deprived of their funds.
377. GDA Entity investors have been damaged by Defendants’ theft in an
amount to be proven at trial and are therefore entitled to treble damages, costs, and
reasonable attorney’s fees.
IX. FIFTH CLAIM FOR RELIEF:
Violations of the Colorado Organized Crime Control Act (“COCCA”)
Colo. Rev. Stat. § 18-17-101, et seq.
(Dragul, the Fox Defendants, and the Hershey Defendants)
378. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
108
379. The Receiver has standing to prosecute these claims both on behalf of
Estate, the SPEs, and on behalf of the GDA Entity Investors, the latter of which
creditors of the Receivership Estate. See Compl. Ex. 1, at ¶ 13(s).
380. At all relevant times, Dragul, the Fox and the Hershey Defendants were
considered “persons” within the meaning of the Colorado Organized Crime Control
Act (“COCCA”), C.R.S. § 18-17-103(4).
381. At all relevant times, the Estate, SPEs, and GDA Entity Investors were
considered “persons” aggrieved or injured within the meaning of COCCA, C.R.S.
§§ 18-17-106(6) and (7).
382. At all relevant times, Dragul, the Fox and Hershey Defendants, formed
an association-in-fact for the purpose of defrauding the Estate and GDA Entity
Investors and prospective investors. See ¶¶ 1-4, 34-44, 47-52, 53-78, 83-89, 90-142,
143-163, 163-214, 216-258, 261-247, 277-291, and 303-309, supra.
383. As described in detail in this Amended Complaint, Dragul and Fox
employed a sham business, the Scheme, with the substantial assistance of Hershey,
Kahn and Markusch, which included distribution of Solicitation Materials containing
false and misleading statements and material omissions in order to solicit investors
to purchase membership interests in various SPEs and in Dragul’s sale of promissory
notes. Hershey directly assisted in this Scheme by soliciting numerous investors to
purchase both SPE membership interests as well as promissory notes. For each
investment made that Hershey solicited, Dragul would pay him a percentage, usually
109
equal to 10%. Contrary to the representations made to convince investors to buy into
any given deal, Dragul and Fox did not, invest those funds where the investors
intended them to be invested and instead used those funds to pay down other debt,
to pay distributions to other investors in other Dragul or Fox deals, and/or for Dragul
and Fox’s own personal benefit. Dragul and Fox trapped investors in deals in which
they had the right to cash out, in order to keep their operation and Scheme running
from 2002 through August 2018 as set forth in detail ¶¶ 1-4, 34-44, 47-52, 53-78, 83-
89, 90-142, 143-163, 163-214, 216-258, 261-247, 277-291, and 303-313, above.
384. This association-in-fact of Dragul, Fox, Hershey in carrying out the
Scheme set forth in detail herein constitutes an “enterprise” within the meaning of
COCCA, C.R.S. § 18-17-103(2).
385. Dragul, and the Fox and Hershey Defendants conducted or participated,
directly or indirectly, in the conduct of the enterprise’s affairs through a “pattern of
racketeering activity” within the meaning of COCCA, C.R.S. § 18-17-103(3), in
violation of COCCA, C.R.S. § 18-17-104(3) to further their Scheme and plans related
thereto, and where all such schemes, devices, and actions were related to the conduct
and in furtherance of their enterprise.
386. Specifically, as alleged herein, these Defendants committed at least two,
related predicate acts of as set forth below in accordance with C.R.S. § 18-17-103:
a. Violations of the Colorado Securities Act, under C.R.S. § 11-51-401
(Dragul and the Hershey Defendants); C.R.S. § 11-51-301 (Dragul and
110
the Fox Defendants); C.R.S. § 11-51-501(1) (Dragul and the Fox
Defendants). See C.R.S. § 18-17-103(b)(XIII).
b. Wire fraud, under 18 U.S.C. § 1343; civil theft under C.R.S. § 18-4-401;
and/or at least two predicate acts of bankruptcy fraud under 18 U.S.C.
§ 157. Each of these crimes are incorporated into COCCA by C.R.S. § 18-
17-103(5). See C.R.S. § 18-17-103(a).
387. As stated in the preceding allegations of this Amended Complaint, the
Dragul, and the Fox, Hershey Defendants directly participated in the affairs of the
enterprise and committed a pattern of racketeering in the following non-exclusive
respects:
a. Dragul and the Fox Defendants violated the Colorado Securities Act
when from 2006 through 2018, in connection with the offer, sale, or
purchase of securities, they employed a devise, scheme, or artifice to
defraud the GDA Entity investors, the Estate’s creditors and other
parties in interest. As set forth above, Dragul, the Hershey and the Fox
Defendants provided false and misleading Solicitation Materials to
prospective investors to induce investments in SPEs owned and
controlled by Dragul and/or the Fox Defendants. Additionally, all
Defendants received illegal and undisclosed commissions from the sales
of properties and/or the SPE accounts. The Scheme involved the
investment of money in a common enterprise with profits that were
111
wrongfully derived from GDA Entity investors, the Estate’s creditors
and other parties in interest. C.R.S. §§ 11-21-501(1) and 11-51-604. See
§ V. A. – E., First Claim for Relief, at ¶¶314-354, supra.
b. Dragul, the Fox and Hershey Defendants committed wire fraud under
18 U.S.C. § 1343 from 2006 through 2018, when they knowingly devised
or intended to devise a Scheme to defraud and to obtain money from
investors under false pretenses, representations and promises,
including material misrepresentations and omissions in the Solicitation
Materials concerning the investment, payment of illegal and
undisclosed commissions, and improper comingling and
misappropriation of GDA Entity Investor funds. Defendants used
interstate or foreign wire communications to carry out the Scheme with
the intent to defraud and obtain money through false pretenses,
misrepresentations or promises, which in fact deprived innocent
investors of their money. This Scheme was reasonably calculated to
deceive persons of ordinary prudence or comprehension. See Compl.
Exs. 3, 4, 5, 6 (as amended), 7, 8, 16, 20, 24, 29, 30,31, 32, 36, and 39;
see also ¶¶ 5-7, 22, 27, 42, 59, 62, 71-77, 82, 87, 89-142, 143-149, 155-
156, 168, 170-171, 173-175, 180, 191-194, 198, 201-203, 211-213, and
293-313, supra.
112
c. Dragul, the Fox and Hershey Defendants committed theft under C.R.S.
§ 18-4-401, and thus engaged in racketeering activity from 2006 through
2018 when each of them knowingly and without authorization took
illegal and undisclosed commissions from escrow upon the purchase or
sale of various SPE properties and the comingled GDA Entity bank
accounts, through deceptive and material misstatements. Defendants
intended to permanently deprive the GDA Entity investors of such
funds, notwithstanding that such funds were property of the GDA
Entity investors. See Compl. Exs. 3, 4, 5, 6 (as amended), and 7; see
also ¶¶ 5-7, 22, 27, 42, 62, 82, 87, 89, 98-100, 111, 113, 121-123, 127-129,
131-137, 143-145, 168, 170-171, 173-175, 180, 191-193, 201-203, 211-
213, and 293-313, supra.
d. Dragul and the Fox Defendants committed bankruptcy fraud under 18
U.S.C. § 152(5) and (8), and thus, engaged in racketeering activity. First,
the Fox Defendants knowingly received a material amount of property
from the Prospect Debtor after the petition date with the intent to defeat
the provisions of title 11. Next, by intentionally devising a scheme or
plan to defraud the Prospect SPEs’ creditors through false and
misleading representations and omissions to the bankruptcy court and
the Prospect SPEs’ creditors regarding the sale of the Prospect Property.
Next, Dragul knowingly and fraudulently concealed, destroyed,
113
falsified, and/or made false entries in recorded information, including
the Prospect Debtor’s books, documents, records, and papers relating to
the property and financial affairs of the Debtor. The Prospect Debtors’
declaration of bankruptcy served as the tool to execute a fraudulent
scheme that was designed to and did defraud innocent GDA Entity
Investors. See ¶¶ 216-258, supra.
388. These acts of racketeering, which occurred within ten years of each
another, are related and constitute a “pattern of racketeering activity” per C.R.S. §
18-17-103(3).
389. The above acts committed as part of the scheme to defraud investors,
the Estate’s creditors and interested parties, were related to each other by virtue of
common participants, a common class of victims, a common method of commission
(solicitation of investments based on false representations), and the common purpose
and common result was to defraud GDA Entity investors, to the benefit of
Defendants.
390. It is unlawful for any person employed by or associated with an
enterprise to conduct the affairs of an enterprise through a pattern of racketeering,
or for any person to conspire or endeavor to commit a violation of COCCA, C.R.S.
§§ 18-17-104(3) and (4).
391. As a direct and proximate result of Defendants’ COCCA violations,
Defendants pilfered the SPEs thereby damaging the GDA Entities, their investors,
114
the Estate and its creditors, who are entitled to treble damages, costs, and reasonable
attorney’s fees pursuant to C.R.S. § 18-17-106(7).
X. SIXTH CLAIM FOR RELIEF:
Aiding and Abetting Violations of COCCA
Colo. Rev. Stat. § 18-17-101 et seq.
(Against Markusch, and the Kahn, Fox, and Hershey Defendants)
392. The Receiver realleges and incorporates by reference the previous
allegations of the Amended Complaint as if fully set forth herein.
393. The Receiver has standing to prosecute these claims both on behalf of
the Estate, the GDA Entities, and on behalf of the GDA Entity investors, the latter
of which are creditors of the Receivership Estate. See Compl. Ex. 1, at ¶ 13(s).
394. At all relevant times, the Non-Dragul Defendants were “persons” within
the meaning COCCA, C.R.S. §§ 18-17-103(4).
395. At all relevant times, the GDA Entity Investors, the Receivership
Estate’s creditors and parties in interest, were considered “persons” aggrieved or
injured within the meaning of COCCA, C.R.S. §§ 18-17-106(6) and (7).
396. At all relevant times, Non-Dragul Defendants knowingly participated in
the enterprise which was an association-in-fact designed to defraud GDA Entity
Investors, the Estate’s creditors and other parties in interest, while enriching all
Defendants as evidenced by the following:
a. All Defendants’ receipt of undisclosed and unauthorized commissions
from escrow of the properties owned by the associated SPE in which
investors purchased membership interests. See Compl. Exs. 3, 4, 5, 6
115
(as amended), and 7; see also ¶¶ 5-7, 22, 27, 42, 62, 82, 87, 89, 98-100,
111, 113, 121-123, 127-129, 131-137, 143-145, 168, 170-171, 173-175,
180, 191-193, 201-203, 211-213, and 293-313, supra.
b. The Fox Defendants’ actual knowledge of and participation in the
Scheme as Dragul’s mentor and business partner, purchasing Estate
assets without the Receiver’s knowledge or consent in violation of the
Receivership Order, improperly withholding GDA Entity Investor
distributions and entity organizational documents; falsifying
organizational documents to transfer control and management rights
post-receivership in order to sell the Airplane, Fox’s dilution of the GDA
Entities’ purchased membership interests, Fox’s payment of funds to
Dragul for the Estate’s membership interest in Fox Entities held
through SSC 02, and other conduct as alleged herein. See ¶¶ 6, 22-23,
36-38, 59, 63, 71-77, 87, 89, 96, 103, 124-125, 128, 130, 156, 179, 194,
198, 212-214, 261-247, 275-284, 285-291, and 298-302, supra.
397. This association-in-fact was an “enterprise” within the meaning of
COCCA, C.R.S. § 18-17-103(2). See ¶¶ 1-4, 34-44, 47-52, 53-78, 83-89, 90-142, 143-
163, 163-214, 216-258, 261-247, 277-291, and 303-313, supra.
398. The Non-Dragul Defendants conducted or participated, directly or
indirectly, in the conduct of the enterprise’s affairs through a “pattern of racketeering
activity” within the meaning of COCCA, C.R.S. § 18-17-103(3), in violation of COCCA,
116
C.R.S. § 18-17-104(3) to further the fraudulent scheme set forth herein and plans
related thereto, and where all such schemes, devices, and actions were related to the
conduct and in furtherance of their enterprise. See id.
399. Specifically, at all relevant times, the Non-Dragul Defendants, through
aiding and abetting and the provision of substantial assistance to Dragul, engaged in
racketeering within the meaning of C.R.S. § 18-17-103(5), when they conspired to
commit and did commit violations of the Colorado Securities Act, under C.R.S. §§ 11-
21-501(1) and 11-51-604; wire fraud, under 18 U.S.C. § 1343; theft under C.R.S. § 18-
4-401; and/or bankruptcy fraud under 18 U.S.C. § 157.
400. The Non-Dragul Defendants participated in the affairs of the enterprise
and committed a pattern of racketeering including but not limited to those set forth
in ¶¶ 1-4, 34-44, 47-52, 53-78, 83-89, 90-142, 143-163, 163-214, 216-258, 261-247, 277-
291, and 303-313, above., above.
401. These detailed acts of racketeering occurred within ten years of one
another and constitute a pattern of racketeering activity within the meaning of C.R.S.
§ 18-17-103(3).
402. The above-detailed acts committed as part of Dragul’s fraudulent
scheme were related to each other by virtue of common participants, a common class
of victims (i.e., the GDA Entity investors, the Estate’s creditors and other parties in
interest), a common method of commission (several years’ worth of unauthorized
transfers of investor funds for Non-Dragul Defendants’ Defendants’ use and benefit),
117
and the common purpose and common result was to defraud the GDA Entity
investors, and the Estate’s creditors, to the benefit of Defendants.
403. It is unlawful for any person employed by or associated with an
enterprise to conduct the affairs of an enterprise through a pattern of racketeering,
or for any person to conspire or endeavor to commit a violation of COCCA, C.R.S.
§§ 18-17-104(3) and (4).
404. In violation of C.R.S. § 18-17-104(3), the Non-Dragul Defendants
conspired with and endeavored to violate the provisions of COCCA, C.R.S. § 18-17-
104(3), by aiding and abetting Dragul as described in ¶¶ 1-4, 34-44, 47-52, 53-78, 83-
89, 90-142, 143-163, 163-214, 216-258, 261-247, 277-291, and 303-313, above.
405. As set forth above, the Non-Dragul Defendants and Dragul conspired
with the common purpose of fraudulently, illegally, and without authorization,
misappropriating funds through a series of fraudulent representations, inducements,
transactions, and wire transfers among and between the GDA Entity bank accounts,
the Non-Dragul Defendants’ personal bank accounts, and title company escrow
accounts. Id.
406. Through their fraudulent Scheme, the Non-Dragul Defendants and
Dragul pilfered the SPEs for their own benefit and thus, have injured the GDA Entity
investors and the Receivership Estate, including its creditors and parties in interest.
407. As a direct and proximate result of the Non-Dragul Defendants’ aiding
and abetting, participating in, and conspiring with Dragul to violate COCCA, C.R.S.
118
§ 18-17-104(3), the SPEs and thus, the GDA Entity investors and the Estate,
including its creditors and parties in interest, have been damaged and are therefore
entitled to treble damages, costs, and reasonable attorney’s fees to C.R.S. § 18-17-
106(7).
XI. SEVENTH CLAIM FOR RELIEF:
Breach of Fiduciary Duty
(Against Dragul)
408. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
409. As manager of the GDA Entities, Dragul a fiduciary duty to the GDA
Entities and their member investors, which required him to use reasonable care and
skill in managing the properties and associated SPEs.
410. Dragul also owed a fiduciary duty to the GDA Entity investors to ensure
the truth and accuracy of the representations made prior to and during the GDA
Entities’ ownership of the associated properties and to ensure that those
representations remained true throughout the ownership of the properties.
411. Dragul breached his fiduciary duties as set forth above, and in the
following non-exclusive respects, as set forth in ¶¶ 104, 33-44, 53-78, 83-89, 91-95,
97-102, 104, 106-142, 143-160, 171-214, 215-258, 259-260, 293-313, above:
412. Failing to provide honest and accurate material information to the
investors prior to and during ownership of the associated properties;
119
413. Failing to disclose that he and the Non-Dragul Defendants received
illegal and unauthorized Commissions from escrow of the sale of SPE properties and
from the SPE accounts;
414. Receiving undisclosed and unearned commissions and/or payments from
escrow of closing on the sale of certain SPE properties and from the SPE accounts;
415. Placing his own and the Non-Dragul Defendants’ financial interests
above the GDA Entities and their investors;
416. Failing to act in the best interest of the GDA Entities and instead
placing his own interests and the Non-Dragul Defendants’ interests above those of
the GDA Entities; and
417. Other acts or omissions which may be identified through discovery and
shown at trial.
418. Dragul’s acts or omissions as described in the allegations and claims for
relief set forth herein constituted breaches of the fiduciary duties he owed to the GDA
Entities and their member investors, and were intentional, willful, and wanton.
419. Dragul’s actions or omissions were intentionally designed to enrich
himself to the detriment of the GDA Entities and their member investors, and were
intentionally designed to conceal material information from the GDA Entity
investors, all to their detriment.
420. As a proximate cause of the Dragul’s breaches of his fiduciary duties,
the Estate suffered damages and losses.
120
XII. EIGHTH CLAIM FOR RELIEF:
Aiding and Abetting Dragul’s Breach of Fiduciary Duties
(Against the Kahn Defendants)
421. The Receiver realleges and incorporates by reference the previous
allegations of the Amended Complaint as if fully set forth herein.
422. The Receiver has standing to prosecute these claims both on behalf of
the Estate, the GDA Entities, and on behalf of the GDA Entity investors, the latter
of which are creditors of the Receivership Estate. See Compl. Ex. 1, at ¶ 13(s).
423. The Kahn Defendants, in their capacity as counsel for the GDA Entities,
aided and abetted Dragul’s breach of the fiduciary duties he owed to the GDA Entities
and their member investors for the purpose of advancing their own interests over
those of the GDA Entities and their investors.
424. As set forth above, the Kahn Defendants obtained direct financial
benefits from colluding in or aiding and abetting Dragul’s breaches.
425. As a direct and proximate result of the Kahn Defendants’ aiding and
abetting, participating in, and conspiring with Dragul to breach the fiduciary duties
that he owed to the GDA Entities and their member investors, the SPEs and thus,
the GDA Entity investors and the Estate, including its creditors and parties in
interest, have been damaged.
121
XIII. NINTH CLAIM FOR RELIEF:
Negligence
(Against the Kahn Defendants)
426. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
427. The Receiver has standing to prosecute these claims on behalf of the
SPEs all of whom are creditors of the Receivership Estate. See Compl. Ex. 1, at ¶
13(s).
428. The Kahn Defendants represented the GDA Entities, which included
handling general representation and litigation matters for each of the GDA Entities.
429. In doing so, the Kahn Defendants owed the GDA Entities a duty to
employ that degree of knowledge, skill, and judgment ordinarily possessed by
members of the legal profession in carrying out services for their clients.
430. The Kahn Defendants were negligent in the following non-exclusive
respects, as set forth in ¶¶ 8, 50-52, 80-81, 59, 71- 77, 96, 124, 130, 161-162, 194, 198,
and 261-247, above:
a. Negligently providing legal advice to Dragul as to the impermissible and
undisclosed comingling of investor dollars and the formation and
management of the SPEs;
b. Negligently providing legal advice to Dragul upon the sale of PMG
concerning the failure to pay distributions to investors and concealing
from investors that the property had been sold but instead of
122
distributing funds to investors, Dragul kept those proceeds for his own
use;
c. Negligently preparing or assisting in the preparation of false and
misleading updates to investors;
d. Negligently preparing and back-dating fraudulent entity organizational
documents in concert with Dragul, Markusch and Fox, to transfer assets
of the Estate without the consent or knowledge of the Receiver;
e. Negligently advising, assisting, and otherwise providing legal services
to Dragul and his staff, including Markusch, and Fox regarding their
continued violations of the Receivership Order, and
f. All other acts which may be uncovered through discovery and which may
be shown at trial.
431. The Kahn Defendants’ failure to exercise the requisite due care in
representing the GDA Entities, including providing legal advice and assisting to
effect Dragul’s fraudulent scheme and taking undisclosed and illegal commissions,
was a proximate cause of the Estate damages and losses.
XIV. TENTH CLAIM FOR RELIEF:
Breach of Fiduciary Duty
(against the Kahn Defendants)
432. The Receiver realleges and incorporates the previous allegation ns of the
Amended Complaint as if fully set forth herein.
123
433. The Kahn Defendants represented the GDA Entities, which included
handling general representation and litigation matters for them.
434. The Kahn Defendants owed the GDA Entities fiduciary duties of loyalty
and due care.
435. The fiduciary duty of loyalty required the Kahn Defendants to place the
interests of the clients – i.e., the GDA Entities, including their investors– over the
interests of themselves, Dragul, or Fox, and further required the Kahn Defendants to
communicate honestly and truthfully with the GDA Entity investors.
436. The Kahn Defendants’ duty of loyalty and duty to provide conflict-free
representation, required them to exercise independent professional judgment on
behalf of the GDA Entities to determine if Dragul’s decisions or instructions were
adverse to, or not in the best interest of the GDA Entities and the investors.
437. In addition to the fiduciary duty of loyalty and duty to provide conflict-
free representation the Kahn Defendants owed fiduciary duties of utmost candor,
communication, and utmost honesty.
438. The Kahn Defendants breached their fiduciary duties as set forth above,
and in the following non-exclusive respects, as set forth in Comp. Ex. 5, and in ¶¶ 8,
50-52, 80-81, 59, 71- 77, 96, 124, 130, 161-162, 194, 198, and 261-247, above:
a. Failing to disclose their receipt of unearned and undisclosed
commissions and/or payment on fees from escrow of the sale of SPE
Properties, including PMG, the Prospect Property, Grandview
124
Marketplace, AP Plaza, and Standley Lake, and from the SPE
associated accounts;
b. Failing to disclose that they also represented Fox and ACF at the same
time they represented the GDA Entities, and in connection with their
representation of Fox and ACF, that they took action that was harmful
to the GDA Entities.
c. Failing to advise the GDA Entities that Dragul and Fox’s interests were
adverse to those of the Entities;
d. Placing their own, Dragul and Fox’s financial interests above the GDA
Entities and their Investors;
e. Failing to act in the best interest of the GDA Entities and instead
placing the Kahn and Fox Defendants’ interests and Dragul’s interests
above those of the GDA Entities; and
f. Other acts or omissions which may be identified through discovery and
shown at trial.
439. The Kahn Defendants’ acts or omissions as described in this claim for
relief were breaches of the fiduciary duties described above that they owed to the
GDA Entity investors and were intentional as well as willful and wanton.
440. The Kahn Defendants’ actions or omissions were intentionally designed
to enrich themselves to the detriment of the GDA Entity investors and were
125
intentionally designed to conceal material information from the GDA Entity
investors, all to their detriment.
441. As a proximate cause of the Kahn Defendants’ breaches of their
fiduciary duties, the Estate suffered damages and losses.
XV. ELEVENTH CLAIM FOR RELIEF:
Fraudulent Transfer -- Colo. Rev. Stat. § 38-8-105(1)(A)
(against all Defendants)
442. The Receiver realleges and incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
443. At all times relevant hereto, and with respect to the illegal and
undisclosed Commissions, there existed one or more creditors whose claims arose
either before or after their payment.
444. The Commissions identified with particularly on Exhibits Compl. Exs.
3, 4, 5, 6 (as amended), and 7 were transfers made in furtherance of Dragul’s Ponzi
Scheme with the actual intent to hinder, delay, and defraud creditors. See ¶¶ 5-7, 22,
27, 42, 62, 82, 87, 89, 98-100, 111, 113, 121-123, 127-129, 131-137, 143-145, 168, 170-
171, 173-175, 180, 191-193, 201-203, 211-213, and 293-313, supra.
445. Pursuant to C.R.S. § 38-8-110(1)(a), the Receiver is entitled to recover
the entire amount of the illegal and undisclosed Commissions.
446. Pursuant to C.R.S. §§ 38-8-108(1)(a) and 38-8-109(2), the Receiver is
entitled to a judgment avoiding the payment of all Commissions to Defendants,
126
directing the Commissions be set aside, and recovering the Commissions, or the value
thereof, from Defendants for the benefit of the Estate.
XVI. TWELFTH CLAIM FOR RELIEF:
Unjust Enrichment
(against all Defendants)
447. The Receiver realleges incorporates the previous allegations of the
Amended Complaint as if fully set forth herein.
448. By virtue of the Commissions and other payments, Defendants have
each received benefits at the Estate’s expense and at the expense of other creditors
that would make it unjust for them to retain those benefits without paying the Estate
the value thereof.
PRAYER FOR RELIEF
The Receiver requests that judgment enter in his favor and against Defendants
for:
A. Compensatory damages in an amount to be proven at trial;
B. Awarding treble damages pursuant to COCCA, C.R.S. § 18-17-106(7)
and C.R.S. § 18-4-405;
C. Pre- and post-judgment interest as allowed by law; and
D. Costs and attorney’s fees as allowed by law; and
E. For such other relief as may be just and proper in the circumstances.
127
Dated: June 1, 2020.
ALLEN VELLONE WOLF HELFRICH & FACTOR P.C.
By: /s/ Patrick D. Vellone
Patrick D. Vellone
Matthew M. Wolf
Michael T. Gilbert
Rachel A. Sternlieb
1600 Stout Street, Suite 1900
Denver, Colorado 80202
Tel: (303) 534-4499
ATTORNEYS FOR THE PLAINTIFF
128
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the 1st day of June, 2020 a true and
correct copy of the First Amended Complaint was filed and served via the Colorado
Courts E-Filing system to the following:
Thomas F. Quinn, P.C.
303 East 17th Avenue, Suite 920
Denver, CO 80203
Tel: 303.832.4355
Counsel for Defendant, Susan
Markusch
Paul L. Vorndran
Christopher S. Mills
Jones Keller, P.C.
1999 Broadway Street, Suite 3150
Denver, CO 80202
Counsel for Defendant, Gary Dragul
John M. Palmeri
Margaret L. Boehmer
Gordon Rees Scully Mansukhani LLP
555 17th Street, Suite 3400
Denver, CO 80202
Counsel for Defendants Benjamin Kahn
and the Conundrum Group, P.C.
Lucas T. Ritchie
Eric B.Liebman
Joyce C.Williams
Moye White LLP
1400 16th Street, 6th Floor
Denver, CO 80202-1486
Counsel for Defendants, Alan C. Fox
and ACF Property Management, Inc.
Thomas E. Goodreid
Goodreid and Grant, LLC
1801 Broadway, Suite 1400
Denver, CO 80202
(303) 296-2048
Counsel for Defendants, Marlin
Hershey and Performance Holdings,
Inc.
Allen Vellone Wolf Helfrich & Factor P.C. In accordance with C.R.C.P. 121 § 1-26(7), a printed copy of this document with original signatures is
being maintained by the filing party and will be made available for inspection by other parties or the
Court upon request.
s/ Terri M. Novoa